US oil explorer Canadian Overseas Petroleum (LSE:COPL) confirmed that it has received US bankruptcy court approval for the purchase of the assets of former partner Cuda, which held assets in rich Wyoming oil country. This follows on from earlier sanctioning in the Canadian courts and completes the approval processes that relate to the transaction.
The next step is a 14 day appeal period, the transfer of the assets and the settlement of any outstanding cash consideration. Sources close to the deal said they expected it to be completed between 18 June and 18 July of this year. It is expected that the completion of the deal will allow COPL to ramp up its exploration activity at the Barrons Flats field. COPL is looking to initiate facilities upgrades and recommence its development drilling program.
COPL said in April that it had signed a purchase and sale agreement to acquire the assets of Cuda Energy, which was a private oil and gas company that went into receivership. Cuda had a non-operating interest in a number of units which are considered complimentary to those of COPL America.
Why the Cuda deal is important to COPL
The acquisition adds unhedged production and exposure to the current high oil price and doubles the company’s corporate cash flow. It also increases its 2P reserves by 47% from 25.8m barrels to 38.2m barrels.
The Cuda acquisition is regarded as “a significant growth milestone” by COPL’s management team. It has been an acquisition they have been focused on for some months now. The terms of the deal are regarded as attractive and highly accretive. The convertible nature of the bridge loan allowed the company to refinance current credit facility and thus reduce cost of capital.
In related news a CPR is expected to be published for COPL’s Deep Unit. This should reaffirm the management team’s resource estimates and could provide some further upside to an already buoyant share price.
COPL’s prime Wyoming oil assets
COPL grabbed investors’ attention in February with a significant conventional light oil discovery at its Wyoming asset, which COPL acquired in January 2021. The asset comprises two oil production units, the Barron Flats Shannon Unit and the Cole Creek Unit, which are at the beginning of their 40+ year life.The recent Barron Flats Federal Deep discovery was the result of an accelerated exploration programme initiated after the acquisition last year of the underlying the Shannon Unit that is already producing 2,000 barrels per day from the existing wells. The current production rate and the new discovery show that the Wyoming asset’s long-term potential for production is, as COPL says, “on a scale many multiples greater than our original expectation”.
The Barron Flats Federal Unit consists of two discoveries, the upper Frontier reservoir sands and the lower Dakota reservoir sands. COPL estimates the Frontier discovery to be 33,000 acres (51 square miles) in size, of which 88% is within its leasehold, and has an estimated OIP of 1–1.32 billion barrels on the company’s leasehold. COPL estimates the Frontier element of the discovery has a capacity of up to three horizontal wells per square mile each initially producing 1,000 –3,000 barrels per day.
The Dakota discovery is estimated to be 37,000 acres (58 square miles) in size, of which 77% is on COPL lands, and has an estimated OIP of 308 million barrels. The discovery well drilled in August 2021 intersected 20 feet of net reservoir sand, and light oil was recovered. The well has been placed on production unstimulated at an initial rate of 100–120 bbl./d. Further exploitation of the Dakota sands will also likely be through horizontal wells.
