16 Nov 2015 07:00
Regency Mines Plc
("Regency" or the "Company")
Oil and Gas Co-operation Agreement
16th November 2015
Regency Mines plc is pleased to announce that it has begun active co-operation with American Resources, Inc ("ARI") aimed at identifying and pursuing oil and gas investment opportunities in the Southern United States.
The first project is contingent on satisfactory leasing arrangements, and would involve Regency taking a 50% Working Interest ("WI") in the planned redevelopment of the North Francitas Oil project in Jackson and Matagorda Counties Texas, USA. ARI will contribute the wellbores for its 50% WI and will be the operator for the redevelopment effort.
Highlights:
o Agreement signed with American Resources to cooperate on identifying and exploiting underdeveloped oil and gas assets through infill drilling, reworks, remediation, and secondary recovery techniques
o Strategy is to find current and near-term production assets in safe commercial jurisdictions with cash generative potential and attractive returns at low oil prices
o Regency Mines option over North Francitas project to take 50% WI / 37% Net Revenue Interest ("NRI") in production wells and two salt water disposal wells ("SWD") for an aggregate cost to Regency Mines of up to $430,000.
o Addition of salt water disposal capabilities allows existing production to be brought back online; no new drilling or connections would be required
o Field models initial production rates of 50-80 BOPD expected.
o Robust economics project a 60% IRR and payback under 14 months at $50 oil
The price of the option will be the cost of the Stage 1 acquisition of the remaining oil and gas leases required by the project.
Contingent on lease arrangements being concluded and subject to funding Regency can elect to exercise the option and to fund the next two stages of development with the intention that these could begin before the end of 2015.
Project Background
Originally discovered in 1951, Francitas originally had 13 productive wells in the field operating until 1973. The field was then dormant until 2007 when two production wells and a SWD were drilled in order to reactivate the field.
The SWD proved to be too shallow (~3,000') and was perforated in poor sands, which led to disposal underperformance during this period. In March 2014 the existing disposal well failed an injection test and was plugged and abandoned. With no salt water disposal capacity remaining the existing production wells were temporarily shut-in.
Subsequently ARI acquired two recently drilled wells on another lease of over 9,000'+ depth for conversion to SWD wells to enable the reactivation and development of the Francitas project. It is believed that the additional depth and robustness of these new SWD candidates will allow the reactivation of the shut-in producers.
American Resources Inc
ARI is a Houston, Texas based independent oil and gas company focused on exploitation of underdeveloped assets through infield drilling, rework, remediation and optimization, and secondary recovery techniques.
Andrew Bell, Chairman, comments: "The Company has begun a co-operation with ARI which it intends to become a long-term working relationship. The initial project aims to add immediate onshore oil production and revenues to Regency Mines, and evidences once more our shift in corporate strategy and investment emphasis.
While Regency has looked at oil exploration and development before, both at Horse Hill and in West Virginia, as reported, neither of these projects could give us the short term returns we hoped for. The North Francitas project continues Regency's targeted focus on projects capable of generating cash flow over short timeframes. Coupled with significant internal cost reductions and business restructuring a new and much leaner Regency Mines has been created.
What Regency contemplates at Francitas is the redevelopment of an existing producing oil and gas asset, where not a single well is required to be drilled and there is no geological or exploration risk, so uncertainties are minimised. By funding the conversion of one salt water disposal well Regency would unlock a 50% share of the future production of previously producing wells.
The successful completion of this investment would deliver a significant revenue stream to Regency, reducing its reliance on financial markets while paving the way for additional development opportunities in the United States.
In American Resources Regency is partnering with an experienced team of oil and gas development professionals, whose investment criteria of low-risk cash generative acquisitions coupled with longer term large scale developments matches well with our vision.
ARI's strategy of well interventions, infill drilling, and secondary and tertiary recovery programmes is a disciplined risk/reward profile. We hope that a successful deal at Francitas may be possible, but should it encounter lease difficulties or delays, which remains possible, the parties may put forward another project as their initial project together.
With this relationship, we signal again the changed focus of our business expansion."
For further information, please contact:
Andrew Bell 0207 747 9960 or 0776 647 4849 Chairman Regency Mines Plc
Scott Kaintz 0207 747 9960 Executive Director Regency Mines Plc
Roland Cornish/Rosalind Hill Abrahams 0207 628 3396 NOMAD Beaumont Cornish Limited
Jason Robertson 0129 351 7744 Broker Dowgate Capital Stockbrokers Ltd.
Christian Pickel 0203 128 8208 Media Relations MHP Communications
The technical information that is contained in this announcement has been reviewed by Mr. D. Troy Vickers, a Registered Professional Engineer in the United States who is a suitably qualified person with over 30 years' oil industry experience and who has reviewed the release and consented to the inclusion of the technical information.
Glossary
BOPD Barrels of Oil Per Day
BWPD Barrels of Water Per Day
Oil cut The ratio of oil produced compared to the volume of total liquids produced