Xstate Resources Ltd (ASX:XST) has acquired a 15% working interest in an oil-producing asset in northern Alberta, Canada, for A$320,000 (C$300,000 ) in cash and 58.33 million XST shares at an issue price of 0.3 cents per share.
The Red Earth assets consist of six oilfields and associated infrastructure and are 450 kilometres north of Edmonton.
Blue Sky Resources Limited is the operator of the project and has recently acquired the Red Earth assets from the original owner.
Company transformation
Xstate’s managing director David McArthur said: “This acquisition takes Xstate from an explorer to an oil producer.
“We have purchased a meaningful portion of these productive fields at a very modest price. The fields are considered mid-life, with the potential to increase and extend their production.
“We look forward to working with the new operator, Blue Sky Resource Limited, who are active and experienced in the region.
“Work on lowering operating costs and accessing the PDNP reserve will begin immediately.
“It is anticipated that Xstate can grow our production and reserves significantly in this region.
“Xstate will continue to actively seek to identify and evaluate further asset opportunities that meet the company’s investment criteria and are capable of being delivered in a timely manner.
“The company will source appropriately sized production acquisitions to provide a sustainable working capital base for the company’s future growth.”
Red Earth asset
Cumulative oil production from the Red Earth fields over 30 years to date has been around 63 million barrels with a low 10% base decline rate.
Approximately 160 producing wells are included in the assets and the current gross production is around 1,000 barrels of oil equivalent per day (BOPD).
Opportunities exist to return currently idle wells to production with the potential for an additional 300 BOPD in the short term.
The property includes extensive long-life oil and gas leases (covering a net area of 123,000 acres), oil wells and associated production facilities and oil flow lines, accommodation, produced water disposal facilities and wells and access roads.
Funding acquisition
The company has already deposited C$30,000 in an Escrow Account for the acquisition.
It is planning to issue 362 million shares at a price of 0.25 cents a share to raise a total $905,000 to fund the acquisition and working capital.
The acquisition is subject to approval by the Alberta Energy Regulator (AER) and the company plans to close the acquisition before January 31, 2021.