CALGARY, Alberta – Finite Resources has been a player in south eastern Alberta since September 2012 when they bought out an aging oilfield from ANRL and proceeded to implement an IOR program to improve production, economics, and reserves. However, to date the program’s results have added no material reserves, and have seen base production declines increase to approximately 76% per year, requiring that Finite Resources walk a fine line with Bay Street as it planned its next move.
We need a game changer, and in the PNG game, a changer is exactly what we need, so we’re looking to change our game – said CEO Rufus Gammatrip in an interview Tuesday
In keeping with the Trust styled strategy, Finite’s technical teams came upon a land sale that would make the Groober field all but vaporize from their portfolio. With a 91% half cycle rate of return and a 2.4 year payout, the new area was a white whale for Finite. The potential acquisition had such promise that Finite could not risk losing the sale to another operator, as that could mark an end to the company’s profitability.
Josh Kliptagh, an intermediate exploitation engineer with Finite, and Janice Ticklerump, the landman, had evaluated the area and created a competitive bid for the property. When their evaluation was presented to their Business Unit manager, he saw so much promise in the prospective deal that he upped the bid amount to ensure a successful acquisition. The revised evaluation was then presented to Marcus Noots, Sub VP of Canadian Development. Mr Noots was so impressed that an executive decision was made to up the bid price yet again, escalating the stakes for Finite. Finally, the evaluation was presented to the Board of Directors for approval since it exceeded the $100MM mark. They, too, requested the bid be increased again, citing the need for Finite to swing for the fences, as it were.
In August 2012, Finite won the landsale bid and acquired the property for $107MM. The initial production results were 10% lower than projected and a drilling program of another 12 wells was slated for Q3 & Q4 2013.
A thorough Q4 2012 lookback into the acquisition revealed that Finite paid significantly more than what the asset was worth, and the rate of return was recalculated to be only 4% (down from an original 91%). To make the matters worse, the payout jumped from 2.4 years to over 2 decades, and the before tax NPV at 10% discount rate on the base production was now negative.
At a Business Unit meeting, the company’s Director of Business development, Mitchell Laycock, lamented the following:
So I go to Hawaii for 2 weeks and you dipshits make an acquisition at $873,000 a flowing barrel. You have to be shitting me! When was the last time you saw an oil property sell for that much? That is an entire order of magnitude too frickin’ high, assholes. Did one of you dimwits forget to carry the 1?!
When news of this transaction hit the streets, investors were not very easy on the mid-sized E&P as its shares plummeted by 39% in early day trading. This was the company’s 2nd largest setback after it was forced to change its name from Infintite Resources Ltd., after investors filed a class action suit claiming that they were mislead by the terms “Infinite” and “Resources” being used together in the company’s name.
<Editor: The concept for this story was submitted by an anonymous Proved Plus Probable reader. You an do it, too!>