The board of directors of Direct Oil & Gas Inc. (“Direct” or the “Company”) has engaged the services of Sayer Energy Advisors to assist the Company with a strategic alternatives process. The Company is open to reviewing all alternatives, which include, but are not limited to, a sale of some or all of the Company’s assets, a recapitalization of the Company, a sale of the Company for cash or a merger of the Company with another oil and natural gas entity.
Direct is a highly focused company, holding high working interest assets in a concentrated area of the northern part of the Peace River Arch in Alberta. The Company’s major assets include operated properties in the following areas: Charlie (oil and natural gas), Cecil (primarily oil), Habay/Worsley (oil and natural gas), Hotchkiss/Lovet/Vista/Cranberry (natural gas), Notikewin (natural gas), Dixonville (natural gas), Chinchaga/Hamburg (natural gas) and Eureka (oil and natural gas) (the “Properties”).
Recent production net to the Company has averaged approximately 941 boe/d (185 bbl/d of oil and natural gas liquids, 4.5 MMcf/d of natural gas), not including 318 Mcf/d of operated production that is currently temporarily shut-in due to ongoing equipment replacement. The Company operates most of its production, which is mainly long-life with low decline.
Direct has been selling a significant portion of its natural gas production into the NYMEX, Chicago and DAWN markets, which has provided it with significantly more cash flow than might be realized through selling natural gas through AECO. For the three months ended March 31, 2019, Direct has 1,300 MMBtu per day being sold into the Chicago system and another 1,300 MMBtu per day being sold into the DAWN system for a net realized price of US $3.475/MMBtu.
Considering forecast commodity prices and the aforementioned natural gas sales arrangements, the Company’s forecast 2019 operating income is estimated to be approximately $3.3 million.
Direct’s LLR as of January 5, 2019 was 1.80, with deemed assets of $31.0 million and deemed liabilities of $17.2 million. There are no immediate abandonment obligations associated with the Properties.
The Company prepared an internal reserves evaluation of the Properties as part of the Company’s year-end reporting (the “Internal Report”), using management’s best efforts, in accordance with the Canadian Oil and Gas Handbook and National Instrument 51-101 guidelines. The Internal Report is effective January 1, 2019 using GLJ Petroleum Consultants Ltd. January 1, 2019 forecast pricing.
The Company estimates that, as of January 1, 2019, the Properties contained remaining proved plus probable reserves of 2.4 million barrels of oil and natural gas liquids and 36.3 Bcf of natural gas (8.5 million boe), with an estimated net present value of $73.0 million using forecast pricing at a 10% discount.
Summary information relating to this divestiture is attached to this correspondence. More specific information is available at www.sayeradvisors.com. A package of more detailed confidential information will be sent to any party executing a Confidentiality Agreement (copy attached).
Proposals relating to this divestiture will be accepted until 12:00 pm on Thursday, March 14, 2019.
For further information please feel free to contact: Ben Rye, Tom Pavic, Ryan Ferguson Young, Mark Zalucky, Grazina Palmer or myself at 403.266.6133.
Alan W. Tambosso, P.Eng. P.Geol.
SAYER ENERGY ADVISORS
1620, 540 – 5th Avenue SW
Calgary, Alberta T2P 0M2
P: 403.266.6133 C: 403.650.8061 F: 403.266.4467