3e Royalties Inc

3e Royalties Inc is a $100 million company providing financing for oil & gas exploration and development primarily by "Juniors" in Africa and other emerging markets.
Half the funds will be used to finance up to 10 low geological risk "development" well projects, and half the funds used to finance "exploration" projects.
Typically exploration agreements (PSA-Production Sharing Agreement; or EPSA-Exploration & Production Sharing Agreement) have a "work commitment" that involves geological analysis, 2D and 3D seismic, and the drilling of about 1 or 2 exploration wells, for a total cost of about $10 million. 3e Royalties will invest about $1 million in each exploration project, and fund approximately 10% of the "work commitment" (max. = 20%).
3e Royalties will convert its equity contribution into an appropriate Gross Overriding Royalty (GOR) on each field discovery, and will not be involved in any day-to-day operational decisions.
3e Royalties will not be required to fund any costs after the initial exploration stage.
Only oil & gas exploration & production (E&P) companies that have a valid exploration agreement (PSA or EPSA) in any country in Africa and elsewhere, may apply for funding.
So called "junior" E&P companies are expected to be the prime clients.
3e Royalties will participate in 60 exploration and development projects, involving between 75 and 100 exploration and development wells.
The royalty stream from the GOR to 3e Royalties will be liquidated after 8-10 years (convert to tax free income trust, or trade sale).
3e Royalties is expected to provide a 36% IRR based on a 1:10 success ratio, and $40/bl for oil.
Of half of the funds invested in exploration wells, 75% of the risk is geological, which will be mitigated by our association with SPROULE INTERNATIONAL, one of the world's top 5 reservoir engineering firms with a very strong cohesive team, and an impressive track record. 3e Royalties' forte will be the depth and quality of geological expertise we bring to evaluating each exploration venture, that any E&P company brings to us. (Sproule has over 75 professional geologists, geophysicists and reservoir engineers on staff).
15% of our risk is political, which is mitigated by spreading our risk over all 53 countries in Africa, plus other emerging basins. A World Bank Group-MIGA policy may be overlaid onto the successful wells.
No one company, or country will receive more than 10% of 3e Royalties funds.
10% of our risk is corporate and operational efficiency which we mitigate by converting our interest to a GOR in the property we analyze, and not in company shares. This non-dilution of shares is very attractive to our clients.
In developing countries there is an order of magnitude mismatch between geological potential and drilling activity which offers exceptional opportunity. For example Africa has about 10% of the global reserves of oil in 160 sedimentary basins, but receives just 1% of the world's drilling activity.
"Junior" companies drill about 25% of the approx 100,000 wells drilled globally each year. They experience great difficulties in raising investment capital for exploration ventures. This provides a financing gap and opportunity for 3e Royalties.
Governance: 3e Royalties will apply the latest World Bank Group CSR (Corporate Social Responsibility) standards recommended for the Extractive Industries Sector.
Timing: 3e Royalties expects to be operational in 2010.
As a result of the relatively large number of projects that 3e Royalties will analyze and participate in, 3e Royalties will provide a source of deal flow and co-financing opportunities for associated investors.
3e Royalties is a unique sectorally focused, international development and exploration drilling company, structured to take advantage of several overlapping niche opportunities, offering superior long term returns in the emerging markets.