Bid Deadline: 5/11/2017 12:00 PM
Sayer Energy Advisors has been engaged to assist Logic Energy Ltd. (“Logic” or the “Company”) with a corporate sales process. Logic is a private corporation with 49 shareholders, very low overhead and only two full-time and three part-time employees.
The Company currently produces approximately 336 barrels of oil equivalent per day (230 barrels of oil and natural gas liquids per day and 636 Mcf/d of natural gas) from its two 100% working interest light oil and natural gas properties in the Hussar and Halkirk areas of southern Alberta (the “Properties”). The Properties, which have long reserve life indexes (over 25 years P+P) have significant upside through infill drilling, reactivations and waterflood modifications. The Company believes that its production could be increased to as much as 2,300 boe/d through these operations.
The Freehold lands leased by the Company on the Properties enjoy a royalty rate negotiated to well below industry norms, resulting in an average corporate royalty rate of 3.19%. Through a previous agreement with the Freehold mineral owner to pre-pay the royalties, Logic now pays no Freehold royalty on production from most of its leased land at Hussar and it pays no Freehold royalty on its leased land at Halkirk. New wells drilled on certain lands at Hussar will be royalty-free for as long as the leases are held by Logic or its successor.
The Properties include two 100% owned facilities for custom crude processing, salt water disposal, natural gas compression and NGL extraction. Both Properties are pipeline connected to oil sales through on-lease LACT units. Third party processing revenue received since January 2014 has totaled over $1.8 million. There is potential to increase this revenue with minimal capital expenditure.
At Hussar, Logic holds a 100% working interest in seven and one quarter sections of land, where it operates 24 producing Mannville oil and natural gas wells. The Company’s recent net sales from the property have averaged approximately 121 barrels of oil per day, seven barrels of natural gas liquids per day and approximately 600 Mcf/d of natural gas (228 boe/d).
The Company has proposed drilling three horizontal wells at Hussar to access additional probable reserves. The estimated cost to drill, complete and equip each horizontal well is $1.5 million.
Logic holds a 100% working interest in seven and one quarter sections of land at Halkirk, where it operates 21 producing Mannville oil wells. The Company’s recent net sales from the property have averaged approximately 100 barrels of oil per day and approximately 36 Mcf/d of natural gas, along with two barrels of natural gas liquids per day (108 boe/d). An additional eight bbl/d is down as one well is currently shut-in, waiting on a pressure test of a pipeline.
A reservoir simulation study of the Upper Mannville I Pool at Halkirk shows that there is four million barrels of recoverable oil reserves that can be extracted through waterflood modifications, reactivations and drilling of additional infill wells. The estimated average cost to drill, complete and equip the nine horizontal wells that the Company has proposed drilling to access these reserves is $1.5 million per well.
As of March 4, 2017, Logic had a corporate LMR of 1.29, with a net deemed asset value of $2.74 million ($12.21 million of deemed assets, $9.47 million of deemed liabilities).
Oil & Natural Gas Contracts & Hedges
Logic markets its oil through Shell Trading Canada on an evergreen contract that is terminable on 30 days’ notice.
The Company’s natural gas is marketed through Suncor Energy Marketing Inc. under a one-year contract that renews annually on October 31st. The Company has firm transportation service under a contract with Suncor that expires on October 31, 2019.
Logic’s natural gas liquids are sold to Gibson’s Gas Liquids Partnership under a one-year contract that renews annually on March 31st.
The Company currently has one natural gas hedge in place to sell 250 GJ/day @ $3.10/GJ until June 30, 2017.
Logic operates 100% of its production, which is over 68% oil. The Company’s total production has recently averaged 336 boe/d (230 bbl/d of oil and natural gas liquids and 636 Mcf/d of natural gas). Logic’s forecast 2017 field level net operating income is $3.15 million.
Sproule Associates Limited (“Sproule”) prepared an independent reserves evaluation of Logic’s properties as part of the Company’s year-end reporting (the “Sproule Report”). The Sproule Report is effective December 31, 2016 using Sproule’s December 31, 2016 forecast pricing.
Sproule estimates that, as of December 31, 2016, Logic’s Properties contained remaining proved plus probable reserves of 2.9 million barrels of oil and natural gas liquids and 3.5 Bcf of natural gas (3.5 million boe), with an estimated net present value of $75.4 million using forecast pricing at a 10% discount.
December 31, 2016 Reserves Evaluation
Reserves & Production Summary by Property
Complete Well List
Hussar Well List
Halkirk Well List
Corporate LLR (as of March 4, 2017)