Source: GeoBio Energy
GeoBio Energy, Inc. (Pink Sheets:GBOE), pursuing its plan to become a dominant player in the oil and natural gas services industry, signed a Letter of Intent to acquire all of the ownership interests of a Grand Junction, Colorado-based pipeline construction company.
GeoBio expects that the combination of the Pipeline Construction Company with the previously announced, anticipated acquisition of a Colorado-based, civil construction company will provide a solid base for growing the GeoBio construction business.
The Pipeline Construction Company is a contractor servicing the oil and natural gas drilling, production and transmission industry that operates in the Piceance Creek Basin in Colorado, Wyoming, North Dakota, Utah and New Mexico. It has grown rapidly and profitably, generating over 50% compound annual growth rate and an average 40% EBITDA over the last three years. The Pipeline Construction Company, coupled with the anticipated closing of Magna Energy Services ("Magna"), a chemical treatment company operating in the San Juan Basin shale play area of New Mexico, provides a solid platform for substantial growth.
GeoBio and the Pipeline Construction Company are currently finalizing the definitive acquisition agreement, under which GeoBio proposes to acquire the Pipeline Construction Company for a combination of cash, debt and equity in GeoBio, with an anticipated closing within 120-days of the Letter of Intent.
As of 2008, Colorado was the eighth leading state for total number of producing natural gas wells, at 25,716. The year also saw natural gas consumption reach near-record levels of 23.2 trillion cubic feet, of which Colorado was an important supplier. With the recent completion of the Rockies Express West interstate pipeline, and anticipated drilling increases in 2010 - 2011 by the operators in Piceance, the Pipeline Construction Company is in a strong position to become one of the leading pipeline contractors in the region.
Further, given that the Piceance Creek Basin is developing at a rapid pace, GeoBio intends to rapidly establish chemical blending and service operations in the Piceance Basin utilizing the relationships of the Pipeline Construction Company. GeoBio expects to grow organically by expanding geographically through the existing relationships of its pending business acquisitions and taking advantage of synergies between the customer bases of Magna and the Pipeline Construction Company.
The demand for oil and natural gas continues to increase in North America and around the world. New exploration and production is expanding at a rapid pace, especially in the shale areas of the U.S. The newly developing Marcellus shale play in Pennsylvania, along with Texas and Louisiana shale plays, are all planned expansion areas for GeoBio.
John L. Sams, incoming CEO of GeoBio, commented, "We are excited about the opportunities in the oil and natural gas service markets of North America. We anticipate that the Pipeline Construction Company, along with Magna, provides a solid platform for potential, long term growth, expansion and profitability, while creating immediate opportunities for revenue and profits. With a proactive strategic sales and marketing plan, taking advantage of the synergies between the two companies, cross selling and expanding capabilities and geographic operations, we believe this will create significant value for our shareholders."