May 2016 - Monthly Letter to Shareholders Dear Shareholders:
The purpose of this monthly letter is to bring BNP shareholders up to date since the last letter.
BNP will be working as a prospect (project) generator, in order to create value for our shareholders. We are looking at projects offshore California through to onshore Alberta, Montana and Saskatchewan. Preferred formatons are the Lodgepole, Madison and Nisku. With an oil price of $45 - $50 WTI, we can develop properties with a recycle ratio of 2 ($2 in reserves booked for every dollar invested). The following is a summary of all potential projects, past and present, that we will be seeking funding for:
- Yellowknife Pipeline Project – Gas pipeline from Northern Alberta to Hay River & Yellowknife. Government of Canada funding is available for private projects up to 25%. This will help the northern mining industry by providing access to lower cost power (natural gas fueled and generated at the mine site). Action: Apply for pre-feed funding. Staged development with a total installed cost of $200 million.
- Santa Barbara, California – Offshore platforms, currently shut in production. Capital cost: $500 - $1,500 million.
If successful in putting a deal together, these assets would be structured as follows:
- Royalty company (private) would hold a 5% GOR on the field. BNP would work with a partner to own a 20% interest of the GOR (1% GOR net to BNP), using a term loan. A portion of the cash flow stream would flow to BNP, allowing us to bring the financial statements up to date and start trading again. This is a 1-2 year plan.
The common shareholders may not want a GOR as a condition of funding. In this case we would work towards owning a 1% working interest, pending funding.
- Production platform and onshore facilities. Our management team would operate these facilities.
- Offshore / Onshore feeder pipelines, linking platforms to onshore facilities – These assets would be purchased by a separate company, partnered with BNP. Management and staff of BNP would operate and maintain these pipelines, for a fee.
- Offshore Power / Fiber optic link – BNP will charter two companies (1-operating company, 1-contract services company), to provide power and telecommunications services to the offshore platforms using subsea cables and HVDC, similar to the technology used with the subsea cables linking Newfoundland and Nova Scotia. This is a longer term project that would require the local state utility as a partner and government approvals.
Once again, this is another growth business, where this technology can be used throughout the world. BNP will develop and test the technology in the USA, before selling throughout the world. Most platforms generate their own power so there is a large market for theses services. Note: Platform must be located within 90 miles of shore.
- California pipeline demolition contracting company:
California will lead the nation on how pipelines are abandoned, in the future. Currently, pipelines that are taken out of service, are filled with Nitrogen and abandoned in place. California regulations will be changing and we plan on being the leading California contractor for pipeline demolition work. With 12” pipeline installation costs, estimated at $1.5 million per mile, demolition of similar lines would be about $0.5 million per mile. Opportunities exist for acquisition of assets, paired with, abandoned in place pipelines. We would bid as a lump sum contractor, and manage the work using our own equipment and a small staff.
- Shale oil play in Southern Alberta. Farm in deal with “Pubco” for completion of two wells drilled in this play. Capital required = $3 million.
- Purchase of Chin Coulee production. Capital required = $3 million.
- Farm in on a Montana property, directly south of the Pubco play.
Capital required = $6 million.
- Power generation, distribution and communication start-up company (BNP Power Co.) to service the Southern Alberta Shale oil play. Used equipment would be acquired to generate power with natural gas. Gas will be cleaned with a small separator and amine unit. Distribution throughout the play will be using 25 kV overhead lines. Each well will be provided with fiber optic communications to allow remote control of the wells from the control center. Initial capital required = $750,000.
- Farm in at Jensen with new lease holder for a 50% earned interest (BNP no longer hold the leases). Recent activity has proven that horizontal wells work best in this field and a recent well south of Jensen has produced at initial production rates of 300 barrels per day of oil, which declines quickly over a 6 month period. We would use BNP Power Co. to provide electricity and communications at Jensen. Natural gas generator, separator, heater treater and amine unit will be required. Existing well would be used for water disposal using an injection skid. Funding will be used for facilities and drilling of 2 new horizontal wells. Capital required = $4-$6 million.
- Purchase of 700 barrels per day of light oil production, located 6 miles south of Jensen, near Del Bonita, Alberta. Capital Cost: $32 million.
- Assortment of wells in the Del Bonita, Alberta area. Completed for Bakken. We would like to complete horizontally for the Madison. Capital cost: $2 million.
- Saskatchewan Viking oil play. We have identified a section of land with 2 horizontal wells licensed. This property could be developed to produce about 200 barrels of oil per day. Capital cost: $500k for property and $2 million to develop.
- Shelby, Montana Nisku property. We have been working with a Calgary based company that owns a Montana lease with a large land position on the Sunburst Dome. We would like to farm in on this Nisku oil play. Capital cost: $2 million.
- Shelby, Montana – Waterflood project: This project only produces 40 barrels per day but if developed with a waterflood, could produce another 1 million barrels of oil. We could spend our full time efforts, just waterflooding existing oil pools in Montana. Waterflooding hasn’t been done on all oil pools, south of the Canadian border. Capital cost: $2 million for production plus $7 million for waterflood phase 1.
- Shelby Montana – Anadarko Bakken well: This was a dry hole rumoured to cost $10 million. We are planning to look at the potential of completing this as a vertical Nisku test well. Anadarko has this well and their Montana land package up for sale. Cost to develop: $1.5 million.
- We are planning to put together a package of wells in the Willisden basin of Saskatchewan, with high water cut (90%-100% water), within existing known oil pools. These are low cost acquisitions. We have new nuclear logging technology available through a start-up service company, using Chinese technology. This technology can map where the water zones are located and seal the water zone, to allow oil production. We will add value by managing the geology, using our Saskatchewan geologist, and developing the plays. Properties would be subject to royalties by the service company. Of all of our ideas, this one has the best potential for growth, if the technology can be proven. This technology is available in Canada but not the USA. Capital cost: $2 - $5 million.
The following are a few activities and observations for this month:
- My project development stage is now complete. Due to the unrest in the Middle East, projects for Libya and Nigeria, did not make the final cut. I will take this list of projects and prepare a project implementation memorandum, showing costs and rates of return. We will take this to market to see which projects are of interest to investors. This will be an investor driven process.
- I have registered the trade name for our Yellowknife gas pipeline in the Province of Alberta.
- I will be proceeding / starting with federal government financing applications for the Yellowknife pipeline in June. This will be project number one for the BNP refinancing.
- Attempted contact to Santa Barbara platform owners. Unable to reach their A&D contact. Will seek funding first as this could be a Billion dollar deal. Proof of funds are often requested before details will be required.
- Had discussions with the owner of a engineering and construction firm, in Calgary, regarding possible financing from Chinese investors. We have potentially $3-4 Billion in projects that we can offer a large investor, seeking to establish a position in a down market. In return for an introduction, we would use this firm for our engineering work (pending successful funding).
- Now that oil prices are firming up, I will start discussions with various hedge funds to see which of our potential projects are of interest for further development. With $48 oil prices, the markets are slowly turning around.
- Oil prices are holding steady in the $48 range due to Nigerian outages and the fires in Fort McMurray.
- Rock Energy is being taken over by Raging River (RRX) for just $0.90 per share (ouch), compared to a reserve report of $3.67 per share. Shares were at $7.50 just a few years ago. This will hurt heavy oil valuations. Reminds me of takeover activity during the 1980’s. Renaissance Energy, Poco and Pinnacle started in the 1980’s. The 1990’s was the early stages of Murray Edwards and CNRL. RRX will do well with these assets, based on the price paid. More acquisitions to come. Keep an eye on RRX as they will be the next CNRL, in 10 short years.
Once again, many thanks to all BNP shareholders & our creditors for their continued support. Our goal is to work towards completion of our recapitalization by April 2017 – April 2018. Of the 15 projects listed, we only need 1-2 to be funded, to get on our feet again.
Yours truly,
James Evans Doody
President BNP Resources