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● 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.
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