Samson Oil and Gas updates status of Foreman Butte acquisition

Source: Sampson Oil and Gas

As previously announced, Samson entered into a contract to acquire oil and gas leases, producing oil and gas wells, currently shut-in wells and associated facilities in North Dakota and Montana for consideration of $16.5M, but the acquisition is up in the air.

As previously announced, Samson Oil and Gas USA Inc (a wholly owned subsidiary of Samson Oil and Gas Limited) entered into a contract to acquire oil and gas leases, producing oil and gas wells, currently shut-in wells and associated facilities in North Dakota and Montana for consideration of $16.5 million. That acquisition was due to close on February 15, but the continuing volatility in petroleum markets has prevented Samson from concluding arrangements for financing of the acquired assets with its primary lender. While Samson remains optimistic that it will obtain the necessary financing and close the acquisition, its failure to meet the February 15th deadline entitles the seller to terminate the purchase agreement at any time. Samson currently expects that the necessary financing will be obtained on or before February 29, 2016, and that the seller will close the sale on that date. There can be no assurance, however, that the seller will not exercise its right to terminate before Samson obtains the funds needed and closes the transaction.

The original purchase price was based upon petroleum prices in the fourth quarter of 2015, which were significantly higher than current prices. Given this decline, it was necessary for Samson to re-examine and revise the expected lifting costs associated with this asset and to then re-estimate the reserves associated with the acquisition. The original reserve estimate used, as is normal industry practice was the historical cost incurred by the current owner. The oil service industry has responded to the lower oil price environment by generally lowering the cost of services. As a result, Samson has obtained contract proposals for well operations which reduces the estimated cost per well.

As a consequence of this and other initiatives, including an advantageous crude marketing arrangement, Netherland Sewell, & Associates Inc., have estimated that the properties contain Proved Reserves of 6.7 million barrels with a Net Present Value of $51.648 million, as at October 1, 2015, the effective date of the transaction, and based on current NYMEX strip parameters.

      Oil (MBBL)     Gas (MMCF)     NPV10 (M$)
Proved Developed Producing     2,147.6     1,049.2     $22,754.7
Proved Developed Non-producing     1,188.9     2,240.7     $11,284.2
Proved Undeveloped     3,343.7     2,340.6     $17,609.2
Total Proved     6,680.3     5,630.5     $51,648.1

Oil pricing used in this estimate represents NYMEX WTI prices as at February 1, adjusted for quality, transportation fees and market differentials. Gas pricing is based on NYMEX Henry Hub prices as at February 1, adjusted for energy content, transportation fees and market differentials. Prices, before adjustments, are as follows:

Period Ending     Oil Price ($/Barrel)     Gas Price ($/MMBTU)
February 2016     39.63     2.300
December 2016     36.95     2.382
December 2017     42.36     2.725
December 2018     44.93     2.837
December 2019     46.74     2.944
Thereafter     48.07     3.065

The reserve report was as customary, completed as at the effective date of the transaction, and therefore follows the future prices of oil and gas as determined at that date and adjusted as described above.

The revised reserve report includes consideration of additional workover and stimulation activities of the PNDP inventory. This category of reserve has a very effective capital efficiency because the activity is relatively in expensive given that it is using existing well bores.

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