Cloudbreak Discovery LSE:CDL, the London-listed company with a focus on generating new mining projects across different metals and jurisdictions, has branched out into the energy sector buying a 3.25% overriding royalty interest on the Masten Unit Energy project.
The Masten Unit Energy project is a brownfield project already in production with a 3,194 net acre producing unit. It produces 80 barrels of oil and 130 thousand cubic feet of gas per day from 18 active wells.
The location of the project is very appealing as it is part of the massive Levelland field in Cochran County in Texas. The Levelland field is situated in the Permian Basin and the producing formation is the San Andres, with an average depth in the area of 1,500 metres. The field has proven reserves of 542,000 barrels of oil equivalent while probable reserves are estimated to be as high as 700 MBOE.
Cloudbreak Discovery said the project will provide a good opportunity for near term cash flow.
Partnership with G2 Energy Corp
Cloudbreak Discovery has partnered up with G2 Energy Corp. (CSE: GTOO), a Canada-listed firm focused on the oil and gas sector, to buy the project. According to the agreement Cloudbreak will provide $2 million to partially finance the acquisition of the Masten Unit Energy project in exchange for a 3.25% royalty and some other benefits of the project. For instance, G2 will pay Cloudbreak the interest of 12% per year calculated and paid quarterly in cash or shares at the discretion of Cloudbreak. G2 will also grant Cloudbreak 6,500,000 warrants with a strike price of $0.30 with a two-year term. The warrants are subject to an acceleration clause.G2 Energy, which is pursuing production acquisition opportunities with high operating netbacks, has developed a comprehensive, economic programme of well re-completion and drilling to rapidly grow both oil and natural gas production from the project. The programme consists of waterfloods and workovers of existing wells as well as new offset wellbores and lateral drilling which G2 plans to start once the financing is completed.
Some additional benefits will be that G2 will also grant Cloudbreak an area of interest that will provide 1% of royalty on any project acquired within a two-mile radius of the Masten Unit lease boundary, and an area of influence giving Cloudbreak the right of first refusal to finance additional acquisitions within five miles of the project boundary.
Listen: Podcast with Kyler Hardy, CEO of Cloudbreak Discovery
Where does the deal fit in with Cloudbreak Discovery’s overall strategy?
The new acquisition is part of Cloudbreak Discovery’s larger strategy to build cash flow and monetize the projects which it has acquired over the last few years.
President and chief executive Kyler Hardy said today: “This first royalty acquisition highlights the beginning of a great working relationship between Cloudbreak and G2. We look forward to additional regional acquisitions, showcasing how our project generator model can be transitioned to the energy royalty sector. Through this and similar transactions in the future, we see an opportunity to create significant shareholder value by growing Cloudbreak’s cash flow through structured deals and portfolio royalty acquisitions in the natural resources sector.”
Cloudbreak Discovery’s modus operandi is to work with a number of projects at any one time. The company has already realised over $23m in value from less than $2m in project investments and has a portfolio of active projects in hand with ongoing generative initiatives to grow its asset base.
