Aug 3 2007
Saxon Oil Company Ltd. has signed a Letter of Intent (LOI) to acquire working interests in 17 oil and gas leases with 21 producing wells operated by Castle Resources Inc. of Schoenchen, Kansas, for $2,170,004 USD in cash. The purchase is conditional on a due diligence review to be completed by Aug 24 and is subject to completion of a formal purchase and sale agreement within 30 days of the LOI. The acquisition is scheduled to close on August 30, 2007.
Located in north central Kansas, these wells typically produce from the Lansing-Kansas City or Arbuckle formations at depths ranging from 3,100 to 4,400 feet. Saxon, which will acquire working interests varying from 59% to 89% in these wells, will act as operator for all 17 leases. Based on the wells actual production history, as reported by the Kansas Corporate Commission in April 2007, these wells averaged 94 barrels of oil per day (BOPD). The net production to Saxon's proposed interest was 58 BOPD.
This acquisition is considered a related-party transaction because family members of Richard G. Green, CEO and President of Saxon Oil Company, own some of the interests being acquired. Mr. Green also owns working interests in a number of these wells but did not sell and did not participate in the negotiations for these wells. As requested by Saxon's management and board of directors, a third-party evaluation of the reserves was performed by LaRoche Petroleum Consultants, Dallas, Texas, prior to negotiation of this transaction.
"This acquisition is important to Saxon's growth strategy for several reasons," commented Steven D. Moore, CFO of Saxon Oil, who is handling negotiations on behalf of the Company. "First, these producing oil assets increase our reserves base and monthly cash flow. Second, before this acquisition Saxon's production was primarily natural gas; because the wells to be acquired are all oil producing wells, our portfolio of production will become more evenly balanced between oil and gas. And third, the acreage acquired with these leases provide Saxon with a number of exploration and development drilling opportunities."
Saxon views Kansas is an attractive growth area. Saxon will continue to look for assets in Kansas that compliment its existing assets and implement its growth strategy. Historically, Kansas ranks fifth among states in the United States in cumulative production with over 30 trillion cubic feet of gas (Tcf) and over 6.6 billion barrels of oil produced to date. Still, significant oil and gas reserves remain throughout central Kansas. In addition, central Kansas holds some of the largest reserves of helium in the world, a quickly depleting commodity that currently sells for more than $70 per thousand cubic feet.