DXI Energy Inc. [DXI-TSX; DXIEF-OTCQB] said Wednesday December 27 it has struck a deal with a private U.S. investment firm, which has agreed to underwrite 50% of the cost of an oil exploration program at DXI’s Woodrush project in northeast British Columbia. Phase I of the program is expected to cost around $5 million.
DXI is an upstream oil and gas exploration and production company with a focus on Colorado’s Piceance Basin and the Peace River Arch region of Canada’s Western Sedimentary Basin.
The company has been operating its 99%-owned, 14,000-acre Woodrush property for roughly a decade, with production exceeding 675,000 barrels of oil. The project is located in an area that has historically been a hot spot for oil production in B.C.
The reservoirs that DXI is targeting have been dubbed “Halfway” due to the relatively equal percentages of oil and gas that tend to occur.
The company has previously said a new seismic interpretation using high resolution sensor geophysical data has identified numerous targets similar to amplitude and depth, but believed to be much larger in area and extent to the existing Woodrush oil pool. This new 3D interpretation encompasses approximately 6,000 to 14,000 acres owned and operated by DXI, the company said.
DXI’s aim is to expand production volumes, reserve life and value and develop sustainable cash flows to support its growth strategy at Woodrush.
DXI said in its December 27, 2017 press release that the funding arrangement provides the investment firm with a 15% non-convertible gross overriding royalty on future production. It also said the arrangement offers DXI many advantageous components, including.
- Independent verification of the 3D seismic interpretation determining the potential of a Halfway cluster drill program at Woodrush;
- An approximate 33% carry on the initial test well of the program; An approximate 25% capital carry on half of all further development costs with provision for a greatly expanded exploration and development program as drill results dictate;
- An approximate 50% reduction in DXI cash expenditures with meaningful leverage to DXI equity;
- Continued DXI operatorship without dilution to its 99% working interest, including central facilities and in place pipeline network ($12 million historical capital expenditure) integral to the Woodrush Project.
Under the terms of the agreement, the unnamed investment firm will pay approximately two thirds of the total costs of the first well in the 2018 program, through tie-in, to earn a 15% gross overriding royalty.
All subsequent well and secondary recovery costs will be shared on a 50/50 basis with DXI for the same return. There will be no equity dilution or interest expense to DXI.
“This significant funding and participation agreement establishes an institutional financial foundation for accelerated development of Woodrush as our specific integrated 3D seismic interpretation is validated through the initial exploratory drilling operation,’’ said DXI President and CEO Robert Hodgkinson.
“New 3D seismic work has indicated that there are a multitude of Halfway anomalies to drill and develop immediately adjacent to our existing production and we look forward to integrating these opportunities within our Fort St. John production hub,’’ he said.
On Wednesday, DXI shares eased 4.76% or $0.005 to $0.10. The 52-week range is $16.5 cents and $0.045.