Permex Petroleum (OIL.C) is raising funds through a non-brokered private placement, fulfilling the first of its three priorities in 2019.
Before diving into the technical details of this PP, a word about the greater context and why it is so noteworthy.
For the uninitiated, PPs are traditionally limited to qualified investors: an issuer’s friends and family, accredited investors, etc.
This leaves ordinary investors–those without $1 million in net worth–out in the cold.
But Permex is doing this one differently by allowing ordinary shareholders to participate, something rarely seen in the capital markets.
The Offering will permit participation of existing shareholders of the Corporation who held shares of the Corporation as of December 31, 2018 (the “Record Date”) and who continue to hold shares of the Corporation as of the closing date of the Offering, pursuant to the existing security holder prospectus exemption available under BC Instrument 45-534 – Exemption from prospectus requirement for certain trades to existing security holders and equivalent provisions of other applicable securities laws (the “Existing Shareholder Exemption”).
Permex is giving its current shareholders, regular folks with small portfolios, a seat at the table and it deserves a pat on the back for this one.
Now, back to your regularly scheduled programming.
The nuts and bolts
Once the PP is completed, Permex says it will use the net proceeds to maximize production through the use of waterfloods and the activation of shut-in wells located in southeast New Mexico and West Texas.
At a minimum, the financing will include 2.5 million units with a maximum range of 7.5 million at a price of CAD$0.20 per unit. Overall, they’re financing efforts aim to raise $1.5 million.
Should Permex raise the maximum, it will use $750,000 to commence waterflooding and shut-in well activation.
If the company is only able to reach its minimum of $250,000, it will prioritize the shut-in wells and bolster working capital.
According to Mehran Ehsan, president and CEO of Permex, these priorities will provide Permex with an organic growth model and insulate the company with a layer of security and sustainability that will benefit not only the business, but all of its shareholders.
Each unit will be the equivalent of a common share of the company’s capital and one common share purchase warrant.
Each warrant will give the holder the chance to purchase a common share of the company at $0.30 a share for two years from the closing of the offering.
Key 2019 highlights for the industry:
- Rig count to fall by H2 2019 in the U.S.
- U.S. domestic production to continue to produce at all-time levels thanks to the Permian Basin.
- Pipeline capacity crunch in the Permian to disappear by end of 2019, giving room for further growth in the regions production.
- Natural gas prices to settle back down after a brief run-up over $4.48/mmbtu recently.
This expiration date will be expedited only if the corporation’s shares reach or exceed $0.50 for 10 consecutive days on the CSE.
Here is Mehran Eshan to discuss the placement:
The second priority is operational performance enhancement by increasing marketing efforts, and the third is an overall every increase in their daily performance by producing more barrels per day.
“We are well positioned to achieve this target in the coming quarters, although new added production will require additional financing, so work will need to continue as it has over the past year to help us reach this goal,” said Mehran Ehsan, president & CEO.
Permex refresher
Permex is a junior oil and gas company with assets in the lucrative Permian Basin straddling Texas, New Mexico and the Delaware sub-basin.
A bulletin released by the US Geological Survey in 2016 estimated that there were 20 billion barrels of crude and 16 trillion cubic feet of gas in recoverable reserves within the basin.
The most recent December 2018 report from the USGS indicated that the reserves may actually be twice the previously recorded size, or 46.4 billion barrels of crude and 281 trillion cubic feet of natural gas.
Many exploration and production companies had to weather uncertain storms in 2018, including a bull cycle that led to a wholly unexpected 40% drop in oil prices, followed by a bear-cycle within weeks of one another.
In contrast, Permex used this downturn as an opportunity to acquire new interests and expand their holdings.
With all of their priorities in line, Permex is poised for a stand-out year–and all of their shareholders are invited.
–Joseph Morton
Full disclosure: Permex Petroleum is an Equity.Guru marketing client.