Exploring opportunities in Texas
Below Sweden Natural Assets AB (SNA) presents a new strategy to enable the public and investors to invest in producing oil fields in Texas.
Taking advantage of the relatively low oil prices and the present crisis in the US oil industry, a good opportunity to purchase high-quality oil fields in Texas, for a relatively cheap price. The reason for the low purchase prices at present is that the value of the oil fields are calculated on today’s low prices, and not the expected average price of the oil fields’ production period, which is usually between 8-20 years.
At the moment the company negotiate with both Swedish and foreign companies that sees this as a major business opportunity. Therefore, the board and management of SNA has now chosen to present the following strategy to give shareholders and new investors a favourable leverage on their investment.
In order for the strategy to succeed and create value for all share holders, a certain minimum level of investment in the company is required, at least around 9 MUSD or 60-70 MSEK.
In the following example, for simplicity, we have assumed an investment of 125 MSEK which gives a 50% ownership of SNA, a 15% brokerage price, an oil price of 56 USD (for WTI 2017-11-14) and the exchange rate 8.40 (USD/SEK).
The investment in SNA results in an average value per share of less than 0.12 SEK, based on a total share issue of 165 SEK (of which 40 MSEK are internal claims between TOS and SNA) and that the number of shares increases from 730 million to 2147 million shares after the share issue.
Investment in producing oil fields
Today’s oil price WTI
Share price development
50% value increase in one year
The investment of 125 MSEK minus fee and operating expenses leaves approximately 100 MSEK to buy oil fields for. Due to the crisis in the industry, we estimate that there is an ample opportunity to buy producing oil wells at the price of 2-3 years of annual return for the fields with today’s oil prices.
An oil field with a annual return of 2 MSEK at the time of purchase could then be bought at 4-6 MSEK. Depending on the size, the life expectancy of the oil well may normally be estimated to 8-20 years, and with a natural decay in production with time taken in consideration.
Because the company’s valuation is based on the reserve report, one may get a three-fold higher valuation of the company due to the extra assets that are included in the oil field. These assets (proven, probable and possible) are described in the reserve report. By including these values in the reserve report, the share value increases.
The calculated value of the oil field assets in the reserve report increases the share value to an estimated value of approximately 0.15 SEK. Thus, only by purchasing the producing oil wells, the original investment of 125 MSEK has increased by about 25%.
Assuming the average oil price next year to be the same as today, the annual return on the oil wells (year 1) would be 33 MSEK. After deduction of operating costs approximately 27 MSEK could be reinvested in new producing oil fields. One year after acquisition of the oil fields the share value is expected to increase due to reinvestment by another 0.03 SEK to about 0.18 SEK.
Rising oil prices
Many analysts believe that oil prices will rise in the future, including Art Berman and Helima Croft, who estimate that it would not be surprising to see an oil price of 60-80 USD within a year or so. A rising oil price would have a significant impact on the reserve report, the annual return and thus the value of the shares.
Please see the table below where the impact of future oil prices on the share value is shown, after a 100 MSEK purchase of oil wells. The effect of reinvestment of the annual return is also taken into account. The initial value per share is approximately 0.12 SEK in this example.
With a 10 USD rise in oil price, the initial investment is estimated to increase more than 100% in stock value, from about 0.12 SEK to about 0.25 SEK per share. According to the example described above, the initial investment of 125 MSEK after one year has increased to a value of approximately 268 MSEK.
The picture below shows the company structure before the investment of 125 MSEK. SNA is owned 63% by its 622 shareholders, and the rest is owned by Texas Onshore AB (publ) (TOS). SNA owns 100% of the US company Texas Onshore Resources Inc. SNA has currently about 730 million shares. TOS is 25% owned by the Swedish company 2B Holding AB and the rest is owned by 1258 shareholders. TOS owns 100% of the American company Texas Onshore Invest Inc. 2B Holding AB is owned by Christel Lernesjö (100%).
After an investment of 125 MSEK by external investors, the ownership structure and shareholdings change. 2B Holding will still own 25% of TOS, but TOS ownership of SNA will change to 27%. The external investors will own 50% of SNA, TOS will own 27% and SNAs other shareholders will own 23%. TOS is likely to make a dividend of SNA shares to TOS’s 1258 shareholders. SNA will own 100% of Texas Onshore Resources Inc., and in addition 100% of Texas Onshore Investment Inc.
Why invest in Sweden Natural Assets?
We have been working with oil and gas production and exploration since 1994 with talented employees in the US and Sweden. The oil industry is a complex industry where knowledge and experience always win in the long run. The intricate work of determining whether a source is a potentially good investment requires both technical and geological experts on site in the United States as well as a team for interpretation, calculation and establishment of a functioning structure. Many oil companies have over the recent years gone bankrupt due to the low oil and gas prices, which have led to a restructuring and an even stronger competition in the industry. Sweden Natural Assets has survived these trials because of many years of experience, knowledge and focus on our shareholders.
Sweden Natural Assets AB is today a well-established company in the industry. We have a large network of contacts, including our subsidiary Texas Onshore Resources Inc. in the United States with the best consultants in the industry. Investing in oil entails high risk, but with the current situation in the US market, new opportunities for investment in producing fields have emerged. According to our estimations this will make it easier to calculate the risks and should provide a safer investment for the future.
Introduction to the stock exchange
As soon as SNA has received the capital injection, work on the stock market launch will commence. This may take about 6-12 months. After additional share issues and using other financial tools, we can only speculate how high the stock price will be.
Although the strategy presented in this document relates to investments in producing oil wells, which have a lower risk profile than working interests, an investment in the oil industry is always a high-risk investment. It is therefore highly recommended that the reader visit our webpage www.swedennaturalassets.se for more information on the various risks, how the oil industry works, description of technical terms etc.