TIDMMSMN
RNS Number : 3006Q
Mosman Oil and Gas Limited
11 September 2017
11 September 2017
Mosman Oil and Gas Limited
("Mosman" or the "Company")
Welch Permian Basin Project Acquisition - West Texas
Mosman Oil and Gas Limited (AIM:MSMN) the oil exploration,
development and production company, announces it has today executed
a contract to acquire several oil and gas leases that comprise the
Welch Permian Basin Project ("Welch" or "Project") located in
Dawson County, West Texas for a consideration of USD$310,000, which
will be funded from existing cash reserves.
Mosman's strategic objective continues to be that of
identifying, acquiring and operating projects with cash flow and
development upside, whilst continuing to add value to our existing
exploration permits with further technical work.
The 34 bopd Welch Project exactly fits this criteria, with near
term upside from low cost workovers and medium term development
potential.
Welch Permian Basin Project Overview
The Project is located in the Permian Basin, in and around the
Welch township in Dawson County, West Texas, approximately 550 km
west of Dallas. It consists of 653 acres of leases (held by
production) with 10 producing wells, 7 injector wells, and 10
shut-in wells. The acquisition includes production equipment and
facilities.
The Project is a small part of the larger Welch Oil Field, which
was discovered in 1941 and has produced in total over 170 million
barrels. Oxy (OXY USA Wtp LP) is the Operator of the Welch West and
Welch South unit, and is having considerable success with drilling,
fraccing and producing horizontal wells in the area. Devon Energy
(Devon Energy Production Co. LP) is the Operator of the Welch North
Unit and has also been very successful with horizontal wells.
After waterflood commenced in 1997, the Project produced at
rates of between 100-200 bopd until 2009, and then gradually
declined. The average sales volume from the Project over the last
13 months has been 34 bopd (gross). There is no formal resource
estimate available for these leases.
Walsh Petroleum, Inc. (one of the previous owners of the
Project) had developed plans for three horizontal wells on the
Welch leases based on adjacent acreage analogues that could add
potentially significant additional daily production to the Project.
These plans look attractive but further technical work needs to be
done by Mosman before a decision could be made to proceed with
drilling these horizontal wells.
In the near term, Mosman's plan is to critically manage the
lease operating expenses and low cost initiatives to increase
production to increase cash flow. Mosman has already identified
existing shut in wells that will be considered for workovers in the
shorter term. This is a similar strategy to the approach adopted
successfully by Mosman at its recently acquired Strawn leases (50%
interest and Operator) where workovers significantly increased oil
production to 440 bbls (gross) in July. The medium term development
potential at Welch, such as horizontal wells, provides further
significant upside potential.
John W Barr, Chairman, said: "The Welch Permian Basin Project is
an ideal acquisition as it meets Mosman's stated objectives,
immediately doubles our oil production and has significant upside
potential. Many similar opportunities are under review and I am
pleased that we are able to demonstrate the active execution of our
Business Plan."
Funding
Mosman will fund the acquisition from existing cash
reserves.
Other General Information
1. There are three separate selling parties; Walsh Petroleum,
Inc., Granite Pacific, LC. and Cornell Energy, LLC.
2. For the half year to 30 June 2017 it is estimated that the
acquisition made a financial loss of USD$85,389 including an
operator overhead charge of USD$18,000. Without this allocation the
operating loss across the leases is estimated to have been
USD$67,389. This figure includes several "one off" items.
3. The acquisition will be completed by Mosman's existing Texas
incorporated entities. Mosman Texas LLC and Mosman Operating LLC
have both been established to hold Mosman's local assets and the
operatorship of the Texas leases respectively.
Agreement of Proposed Acquisition, Completion and Risk
The Acquisition is conditional on standard settlement
issues.
Settlement is expected to be completed in September 2017.
Wells, Lands, Leases & Units
The wells are spread across six leases being acquired by
Mosman:
Lease Working Interest Net Of Royalty
(%) Interest (%)
---------------------- ------------------ ----------------
Britt 65 100.00% 82.09%
---------------------- ------------------ ----------------
Britt 131 100.00% 81.49%
---------------------- ------------------ ----------------
Drennan 208 100.00% 81.73%
---------------------- ------------------ ----------------
Fortenberry 99.29% 79.85%
---------------------- ------------------ ----------------
Marr 94.00% 72.38%
---------------------- ------------------ ----------------
Welch Town site Unit 96.14% 72.10%
---------------------- ------------------ ----------------
The rights are to the base of the San Andres structure and no
deep rights.
Royalties and Taxes
Normal USA royalties are payable. Royalties range from 18-28%
resulting in the Net Revenue Interests shown in the table
A state severance tax of 4.6% applies to the market value of oil
produced in Texas. In addition, any profits resulting from oil
production will be subject to US income tax.
Project Life and Abandonment Liabilities
The leases are "held by production". Typically, these projects
continue as long as revenue exceeds operating cost, which is mainly
a function of oil price. Based on current production, Mosman
anticipates the field will produce for the foreseeable future.
The established regulatory system in Texas requires that 10% of
inactive wells need to be restored to production, or abandoned on
an annual basis. Mosman intends to meet this obligation by
restoring wells to production. The hypothetical total cost of an
immediate full abandonment of the Asset is estimate to be
USD$426,720 but as noted above Mosman does not expect this to be
applicable to the field in the foreseeable future.
Mosman Operating LLC will be able to utilise its existing RRC
bond which will allow for a consolidation of operating costs and
funds across its Texas based projects.
Competent Person's Statement
The information contained in this announcement has been reviewed
and approved by Andy Carroll, Technical Director for Mosman, who
has over 35 years of relevant experience in the oil industry. Mr
Carroll is a member of the Society of Petroleum Engineers.
Risks
The proposed Acquisition remains subject to completion.
Mosman has in the ordinary course of business accepted certain
historic information from the vendor as being fact, and has not
attempted to independently verify each statement, rather it has
focussed on key facts which have been subject to due diligence both
internally and using external consultants.
As is usual in the oil industry, the Asset has subsurface,
reserve and production risk.
A number of assumptions have been made in determining the
operational targets, production rates and expected cost reductions
possible that may not be achieved or may be influenced negatively
by factors outside Mosman's control.
This RNS contains forward-looking statements which have not been
based solely on historical facts but rather on Mosman's and its
technical advisers' current expectations about future events and a
number of assumptions which are subject to significant
uncertainties and contingencies.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
Enquiries:
Mosman Oil & Gas Limited NOMAD and Broker
John W Barr, Executive SP Angel Corporate Finance
Chairman LLP
Andy Carroll, Technical Stuart Gledhill / Richard
Director Hail
jwbarr@mosmanoilandgas.com +44 (0) 20 3470 0470
acarroll@mosmanoilandgas.com
Gable Communications Limited
Justine James / John Bick
+44 (0) 20 7193 7463
mosman@gablecommunications.com
Updates on the Company's activities are regularly posted on its
website
www.mosmanoilandgas.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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