A Year to Transform TomCo
TomCo Energy has kicked off the drilling of three exploration wells at the Tar Sands Holdings II (TSHII) site, located in Uinta Basin, Utah. TomCo currently owns a 10% interest in TSHII with an exclusive option to acquire the remaining 90% for additional cash consideration of US$16.25 million before 31 December 2022. These wells are targeting the oil sands at depth to demonstrate the continuity of the deeper formation. Initial results from the drilling completed to date have conformed with the company's expectations.
TomCo published a reserve report for TSHII in January, which estimated 1P reserves of 22.8 million barrels of oil (mbbls), 2P (proved + probable) oil reserves of 33.6 mbbls & 3P (2P + possible) oil reserves of 44.3 mbbls.
TomCo is planning to acquire the outstanding 90% interest in TSHII, and then advance it to production from both open-pit mining operations in the near-surface formations and steam injection in the deeper formations. The company is currently in discussions for a funding package of up to US$145 million to allow it to complete these transformational milestones. The initial oil sands remediation plant is expected to produce 5,000 barrels of oil per day from the mining of oil-bearing sands at the TSHII site. Initial economic studies have suggested operations could return a post-tax NPV10 (net present value with a 10% discount rate) of US$576.3 million using a 25-year operation life.
The oil-sands in the Uinta Basin have been a long-standing environmental issue for the local community and by cleaning these sands in a commercial operation, TomCo can create value for its shareholders and the local community simultaneously. The plant is expected to produce a variety of hydrocarbon products, a higher-value asphalt product or a heavy oil and diesel. In addition to hydrocarbons, the plant is expected to produce construction sand, industrial sand, fracking and well sand and silica sand. Interestingly, it is the sands that are expected to generate the bulk of the revenue for the company, so the operation is expected to be economic in a low oil price environment.
Through its subsidiary, Greenfield, TomCo has already operated an existing oil sands pilot plant at Asphalt Ridge, which demonstrated the feasibility of mining shallow tar sands using conventional open pit mining and applying solvents to extract, process, and sell oil. Having demonstrated the viability, TomCo has now begun to negotiate marketing contracts for refining and marketing asphalt, heavy oil and diesel.
Alongside the mining and remediation of oil sands, TomCo is also planning to drill production wells to remove oil, using steam and CO2 injection, from deeper formations, which can't be assessed by the open-pit mining operation. The CO2 used for this process will be industrial CO2 that would have previously gone into the atmosphere and will now instead be sequestered within the oil-bearing formation. Potentially this process could capture and store more CO2 than the oil being extracted would produce when used, creating carbon-negative oil production.
The next steps for the company will be:
- Completion of the exploration wells — Q122
- Secure the permits for production wells — H122
- Securing the funding required to acquire and develop TSHII — Q222
- Commence production well drilling — H122
- Commence optimisation studies on the mining operation — H122
- Commence construction of the mining operation — H223
Exploration Drilling Update
Initial results from the three exploration holes being drilled at the TSHII Project have not encountered any water to date. The first well, AC1, has reached a depth of 120 feet and the second well, AC6, has reached a depth of 80 feet. The third well, AC2, is anticipated to be completed next week, once the holes are completed flow tests will be conducted to confirm the oil saturation.
MoU with Vivakor Inc (NASDAQ:VIVK).
TomCo has entered into a memorandum of understanding (MoU) with Vivakor Inc. covering the proposed development of an enhanced oil sands processing plant on the TSHII site and the provision of professional services by TomCo's subsidiary, Greenfield.
Vivakor plans to develop, enhance and operate a pre-existing oil sands processing plant located on the TSHII site, with Greenfield's assistance. The upgraded plant would be designed to produce at least 1,000 barrels of oil per day or equivalent tonnage of asphalt cement.
In return for its services, Greenfield would be entitled to receive 50% of net revenues received by Vivakor for any post-processed sand material from the plant sold through an offtake agreement procured by Greenfield.
Vivakor Renewed Lease
In addition, Vivakor has entered into a renewed lease with TSHII covering roughly three acres of the TSHII site to accommodate its planned operations, which includes the future supply of oil sands by TSHII. This agreement has a term of five years, with an option to extend for a further five years, effective from 9 March 2022.
As part of the lease agreement, TSHII will supply Vivakor with such quantity of oil sands as Vivakor determines each month, at a set minimum saturation quality, with a maximum supply of 2,000 tons per day.
Vivakor will cover the cost of mining the oil sands and will pay TSHII US$3 per ton of oil sands processed by way of a rental payment for the lease, potentially generating between US$11 million and US$15 million per annum for TSHII. Vivakor has paid a US$30,000 advance against future rental payments on the signing of the lease.
TSHII Leasing Existing Refinery
TSHII has commenced a 10-year lease for an existing refinery already present on the TSHII site. This refinery was not part of TomCo's plans for the project and was previously scheduled to be demolished.
The tenant intends to develop a 10,000 barrels of oil per day refinery on the site and under the terms of the lease has two years to do so before potentially forfeiting the lease, from the commencement date of 1 March 2022.
The tenant is to pay TSHII US$10,000 per month as monthly rent, together with a production rent of US$3 for every barrel of hydrocarbons produced, potentially generating up to US$9 million per annum for TSHII.
Heavy Sweet Oil Agreement
TomCo is further leveraging its operational team and experience with an agreement with Heavy Sweet Oil LLC, a US-based oil and gas company, to assist it with permitting and government relations in respect of their planned drilling programme adjacent to the D Tract of the TSHII site.
The services being provided to Heavy Sweet Oil is being undertaken alongside TomCo's own work programme to progress its plans for the TSHII site. Heavy Sweet Oil has agreed to pay TomCo US$10,000 per month for its services, with the agreement backdated to start from 1 January 2022.
Should Heavy Sweet Oil progress to producing oil it is anticipated that some supporting infrastructure for their operations will be located on the TSHII site.