This should be studied carefully before an investment decision is made in Texas Onshore Resources, Inc.
The risk factors are not in any way listed in order of priority and they do not cover all contingencies. There are factors other than what is mentioned below that can affect the project and its results. In addition to understanding the information below, each investor should reflect and make a personal evaluation based on his own experiences and wishes prior to making an investment. The capital that is invested can entirely or partially be lost if the investment/project is unsuccessful.
Sweden Natural Assets AB cannot, with absolute certainty, measure known, probable or potential reserves in a oil and gas field, but, using geological surveys and drillings, petroleum engineers can calculate how large the oil and gas reserves are in a deposit.
The reliability of such surveys can vary considerably and the Company’s estimated reserves can therefore be less than what is stated.
There is currently no technology that can predict with 100% accuracy how large a reserve is or whether it is possible and profitable to develop.
A reserve estimate consists of many different parts that are weighed together as a whole. The amount a reserve is considered to hold is a combination of seismic data, actual data from drillings (logging), data collection from nearby wells, analysis of drill cores, historical data from the area and simulation models. After estimating the reserves, the value can be assessed based on existing oil prices and the size of the reserves. As prices for oil and gas change, so does the value of the reserves. Decreasing prices affect the project negatively.
The price of oil affects the value of the project and the cash flows since the assets (reserves) and earnings decrease or increase when the price of oil changes. Today, 40% of the world’s total energy need is met by oil, which is expected to maintain that share for a long time. Alternative energy sources are expected to be successful in the global energy market in the future when an increased need for energy and higher energy prices help make alternative forms of energy attractive. Oil and gas prices are traditionally lower during the summer and then recover in the fall. The following factors help influence the future price of oil.
- Oil and gas demand and business trends in the world
- OPEC’s strategies and decisions
- Level of exploration and the number of drilling rigs in operation around the world, on and offshore
- The decline in production in existing oil and gas reserves
- Size of oil assets
1. Future demand for oil
During the last 10 years, the demand for oil has increased from 66 million barrels to 77 several years ago, and now 84 (according to SVT) million barrels of oil per day, and it is expected to increase at the same rate in the coming years. China, among others, is believed to contribute substantially to this increase, as well as other countries experiencing explosive social development, contributing to an increased demand for services and products that are based on oil. There is no doubt that oil will play an important role in the future. It is a simple energy source and does not require much investment compared to what it generates. And much of the technology in global society is based on products dependent on oil.
2. OPEC’s strategies and decisions
OPEC continues to show strength by maintaining production quotas for its members at a set level. The average daily production for 2000 was 29 million barrels, in 2001: 28.3 million barrels, in 2002: 26.3 million barrels, in 2003: 27 million barrels, in 2004: 27 million barrels, and in 2005: 27.5 million barrels. In October 2006, OPEC’s daily production was 27.7 million barrels. By varying the production rate, OPEC countries can, in many ways, control the price of oil in the desired direction, according to U.S Energy Information Administration.
3. Level of exploration and number of drilling rigs in operation
From 2014 to 2015, the number of drilling rigs decreased to 1777 from 1750. The number pertains to drilling rigs in North America and the total number of rigs – both on and offshore.
|North American Rig Count||Change||Percent Change|
4. Production in existing oil and gas reserves
The decline in production in large oil and gas fields continues by approximately 7% per year and, along with an expected higher demand for energy, approximately 10% in new production is needed so that world production can meet demand.
5. Size of oil assets
It is not possible to determine with certainty how large the earth’s oil supply is. But calculations indicate that, with the present rate of production, the conventional oil supply will last another 75-100 years. New extraction methods are constantly being developed, making extraction from “harder” wells possible. An example of this is that today oil can be profitably extracted from tar sand in Canada, something that was previously considered to be impossible with normal profitability requirements and the technology of that period. It is believed that there is enough oil just in tar sand and oil shale for another 100 years of extraction, measured with today’s high rate of production. Experts claim that oil will never run out. What will happen in the future is that there will a breaking point – extraction will be more expensive and therefore the price of oil will be significantly higher compared to other alternatives.
Production does not correspond to the forecast
A careful examination of the production machinery and a technical analysis of the formations by a petroleum engineer is the basis for the Company’s production forecast. Consultants hired by the Company have the necessary knowledge and experience to, in a professional manner, calculate production volumes and operating costs. It must be noted that these calculations, in no way, constitute a guarantee for commodity prices, return, costs or production. Expectations for these factors can change in either direction.
Engineers, geologists and/or geophysicists perform all the calculations before a drilling. These specialists have documented experience in prospecting oil and gas. Their expectations, in no way, constitute a guarantee for commodity prices, return, expenses or production. Expectations for these factors can change in either direction. In the event a drilling results in a negative outcome, capital is depleted and the current reserves are also adjusted downwards. Every single drilling well should and must be viewed as a high-risk project, and it is important to the Company that the exploration capital is spread out to a number of drillings in order to minimize the risks as much as possible and to also protect the invested capital.
The risk for serious damage to the environment in connection to the prospecting and exploration of oil and gas should always be taken in consideration. There is a risk that the operation can cause discharge into the air, the sea and groundwater, and on the ground, thereby threatening the environment. In particular, the environment can be damaged because of an accident in the operation. According to applicable laws and regulations as well as prospecting and production agreements entered into, the project can be held financially responsible to governments, joint-venture partners and third parties for such damage.
The project outcome is affected in both directions by the value of the dollar. When the value of the dollar increases, the asset value in the USA increases. When the value of the dollar decreases, the asset value decreases.
Decisions in political circles, at places where business is conducted, in theoretical markets or other places can affect costs and profits negatively or positively depending on what decision has been made. Even political decisions on a global level can have after effects in the North American market.
The development of technology intended to promote businesses other than the oil industry, mainly transportation and the automobile industry, is aimed at operating vehicles more efficiently using hybrid technology. This lowers the owners’ dependence on fossil fuels (gasoline, diesel), which can negatively affect the project’s profit growth. Technology development in the oil and gas industry can also have negative repercussions for the project if it benefits competitors in a favorable way.
Conflicts can be a risk factor on both the national and international level. Internationally, if, for example, sanctions are introduced or if land or sea disputes are initiated. National conflicts can have negative consequences for the project if, for example, rights are revoked, nationalization occurs or equipment is confiscated.
Terrorism and acts of war
If the project is subjected to terrorism, acts of war, revolts or other types of conflicts, it can have a negative impact on cash flow, equipment and personnel and other assets.
Texas Onshore Resources operates its business in Texas – bordering the Gulf of Mexico in the south. The Gulf of Mexico is a very active weather area and it cannot be excluded that, in case of difficult weather conditions, this may have negative effects in the form of delays, interruptions and other serious incidents.
Taxes and fees
Swedish and American projects are subject to each country’s tax laws. Changes in these can make it more difficult or more costly to operate.
The oil and gas industry is a competitive industry with high stakes. Therefore, it is important to maximize all advantages and minimize risks. With continuous oil production and rising oil prices, competition is stiff on all levels – not just projects with proven reserves. Texas Onshore Resources must have access to equipment in order to prospect for oil and gas. If this equipment is not available, it can result in such consequences as delays, lost licenses, and increased costs.
Further risk capital
To ensure the Company’s operating and exploitation opportunities in the future additional equity will be required. If the company is unable to obtain sufficient future investment company may be forced to drastically reduce, or discontinue, business.