QS Energy, Inc., a developer of integrated technology solutions for the energy industry, has further elaborated on material disclosures it recently provided concerning commercialisation of the re-engineered applied oil technology (AOTTM) viscosity reduction system, and the company's ongoing diversification strategy of acquiring undervalued oil and gas assets to capitalise on today's buy-side opportunities. In a follow-up to a 10 February news release concerning the redeployment of a newly optimised AOT unit, QS Energy confirmed that transport of the customised equipment by freightliner to the Eagle Ford Shale has now been definitively scheduled at the request of a customer and partner in Houston, Texas for installation on a designated pipeline pump station.
"The purpose of this timely release is to convey additional insight into our mergers and acquisition strategy during this pivotal period as the AOT is being re-deployed in the field with a US$30 billion pipeline operator," stated Greggory M. Bigger, Chairman and Chief Executive Officer.
"We're pleased that our goal of commercialising the optimised AOT system is occurring as we continue to perform due diligence on distressed assets within the oil and gas vertical. As stated previously, we reviewed two prospective acquisitions in 4Q15, one located in Louisiana and the other based in the Haynesville formation in Texas. We'll continue to look at deal flow, perform due diligence, and when we identify the optimal opportunity for our shareholders, we will engage in a letter of intent to acquire those assets."
In July of last year, the company announced the establishment of QS Energy Pool (QSEP), a wholly owned subsidiary to execute on a diversification strategy based on the acquisition of distressed, non-operated assets out of bankruptcy.
"The QSEP advisors are diligently furnishing deal flow to our management team and Board of Directors, providing us with the opportunity to appraise assets and perform due diligence for a period of 30 - 60 days," Mr. Bigger commented.
"If, in our judgment, these assets represent a benefit to our shareholders, we will create a letter of intent and/or a buy-sell agreement, purchase agreement to further pursue the opportunity."
Mr. Bigger added that any such acquisitions were dependent on the sourcing of secured debt financing to ensure QS Energy's ability to protect against further dilution of the company's equity base.
Natural gas acquisition
As an example of the opportunities recently under consideration, Mr. Bigger cited a potential transaction identified by QSEP's advisors, which consisted of a natural gas acquisition in the Haynesville Shale formation, the world's fourth largest onshore gas reserve. If finalised, the agreement would have provided QS Energy with a majority interest in leasehold and drilling rights of four fields within the formation, comprising over 7000 gross acres in four field areas, 21 producing wells and 38 Proven Undeveloped (PUD) and Probable wells.
"At the time, prices per 1000 ft3 of natural gas were at US$2.79 per million Btu, but then precipitously dropped below US$2.00 million Btu, resulting in a decision to hold off on acquiring that asset," Mr. Bigger said.
"This asset may or may not still be in play, but we are in discussions with our advisors at QSEP regarding our ability to buy that asset at the right present value minus ten percent discount, or PV10 (present value of estimated future oil and gas revenues, net of estimated direct expenses, discounted at an annual discount rate of 10%)."
Despite the depressed state of commodities and natural gas currently selling at under US$2.00 million Btu, Mr. Bigger pointed out that operators active in high output formations such as the Marcellus Shale are maintaining profitability by keeping drilling and transportation overhead at around US$1.50 per 1000 ft3, representing a substantial percentage of markup upon delivery to market. In performing the due diligence on the Haynesville acquisitions, an internal QSEP 16 page due diligence report was produced which showed that, if acquired at the desired target price, this single asset alone would have taken the Company completely off of its burn rate and been cash flow accretive on a go-forward basis.
"QS Energy also benefitted from further analysis which was provided in a 2014 audit of the Haynesville assets by independent oil and gas consulting firm," he explained. "Their in-depth research showed an estimated ultimate recovery (EUR) from producing wells (PDP) at 6.3 billion ft3 of natural gas and another 19 proved undeveloped sites (PUD) contain another 6 billion ft3 of natural gas, which we used to base several of our cost basis assumptions."
Edited from source by Stephanie Roker
Read the article online at: https://www.energyglobal.com/pipelines/equipment-and-safety/24022016/qs-energy-redeploys-oil-technology-aot-part-1/