American Oil and Gas, Inc.
Symbol AOGI
American Oil and Gas, Inc. is an independent oil and natural gas company engaged in exploration, development and production of hydrocarbon reserves primarily in the Rocky Mountain region. Additional information about American Oil and Gas can be found at the Company's website:
www.americanoilandgasinc.com .
American brings together the experienced teams of Tower Colombia Corporation and North Finn LLC - two private companies, whose principals each have over 30 years of successful experience in the Rockies.
Tower Colombia and North Finn (Tower/Finn) have assembled 4 compelling prospects located in the Powder River Basin of Wyoming and the Northern Bighorn Basin of Montana, totaling over 40,000 gross acres with good potential for commercial oil and gas recovery from both conventional and non-conventional sources. Tower/Finn will retain 50% working interest in the prospects, (American has the option to acquire this interest at a mutually agreed upon price, at some future date, should Tower/Finn decide to sell), while the remaining 50% becomes the foundation of American. Tower/Finn are management to and joint venture partners with American, and the largest shareholder in American at 20%. In addition, Tower/Finn has granted an option to American to acquire 50% of their negotiated interest of any future projects to which they are exposed for additional equity in American. This is indicative of their commitment to the success of American.
This group has an enviable track record in engineering, geology, and finance and has proven their ability to locate and successfully develop prospects in the prolific Rocky Mountain area. During the period from 1979 to present, this group of industry professionals has been involved in the drilling of over 1,500 producing wells and generated hundreds of millions of dollars in net asset value, mainly to the benefit of their client companies.
The decline in the production of natural gas in both the US and Canada continues to accelerate. Drilling activity has declined substantially as more rigs sit idle. A natural gas supply crunch seems imminent as the economy recovers to normal growth rates. The price of natural gas continues its upward trend and is now above $4.00/mcf. The supply situation will not change until new LNG supplies come on stream in 2006/2007 and even that supply will be hard pressed to meet normal demand growth.
The financial difficulties of Dynergy, Williams, Mirant and Calpine have led to an excess of good available prospects at bargain basement prices. The day rates of drilling rigs are quite low while the price of gas and oil remains strong. This is an excellent formula for success for a young E & P Company.
American Oil and Gas (AOGI) has positioned itself to take advantage of the above positive economic scenario through the acquisition of four projects in highly productive areas.
In addition, Mr. Pat O'Brien, an Industry veteran of 32 years, has been named CEO and President of American and will manage the operations of the company going forward. Mr. O'Brien will take advantage of strategic alliances with two industry partners, North Finn, LLC and Tower Colombia Corporation, to accelerate American's entity into the E & P business.
The E & P Industry Outlook
The fundamental outlook for both the oil and natural gas production sectors is very bullish. Crude oil inventory in the U.S. at 270 mmbbls is lower than at any time since 1976. Oil inventories are also well below normal in Japan and Europe. WTI crude prices have reached 29-month highs recently of over $37.00/bbl (70% above 2002). Inventories have been reduced by production problems in Venezuela and the more normal recent heating season requirements for fuel oil. There is no incentive to switch industrial load to natural gas at current high gas prices. The U.S. currently imports over 60% of its crude oil requirements and 17% of its natural gas requirements.
Henry Hub natural gas spot prices for February 24, 2003 ended the day at over $12.00/mmbtu (over 300% above 2002) with 12-month forward strip pricing at $6.00/mmbtu. Natural gas in U.S. storage is 43% below 2002 levels (27% below the five-year average) and 54% lower in Canada than in 2002. Refilling storage this summer should keep gas prices strong for the next year. The longer-term outlook for the petroleum industry is strong and positive as well:
· Current prices are strong despite a weak economy and very warm past winter weather patterns (high gas storage volumes at the beginning of the 2002-03 winter season).
· The decline rate for domestic gas production has been increasing over time making it more difficult to replace existing production. There are signs that U.S. natural gas production may be peaking as oil production did 30 years ago. Conventional gas production peaked in 1992. Increases in production are only possible by developing more costly unconventional sources.
· The gas-directed U.S. rig count has not increased to reserve replacement levels. It takes more rigs to replace production than in the past. As more rigs are added, productivity (new gas added per new well completed) declines.
· Canadian gas production (16% of supply) is suffering through the same issues as U.S. production.
· Demand for gas-fired power generation is projected to continue to increase in the near future. Over 115,000 MW of generating capacity has been added since 1999, 95% of which is gas fired. Demand for gas as fuel for power generation was up 10% in 2001 even though total power generation was down 1%. Industry analysts expect another 45,000 MW of new capacity to be placed in service in 2003. Each 10 MW of electric generation requires ~1 mmcf/d of gas for fuel. The fuel requirements for the 1999 - 2003 additions alone could add up to 15 bcf/day depending on project utilization.
· Industrial gas demand in the U.S. has declined recently. Most price-sensitive industrial demand has already been lost meaning less or no declining industrial gas demand in the future. Oil prices are also relatively high making fuel switching less attractive.
· All of the world's major energy projects are aging and in decline. (Alaska North Slope, Brent, Forties, Ekofisk, Cantarell, Samorlar, Cusiana, Cupiagua,….) New discoveries are smaller. No super giant fields have been found since 1975.
· Global petroleum infrastructure, which delivers 120 million b/d, is old and will require huge investments to maintain and replace (pipeline systems, tanker fleets, rig fleets… 30 to 60 years old).
. Over $5 trillion globally by 2010
· Global energy use exceeds 200 mmboe every day. 12% of the world's population uses 54% of the energy while 1/3 of the world's population has no access to modern energy. We will need to add 80 mmboe/d in the next 13 years.
· China and former Soviet Union ("FSU") countries are huge potential additional sources of demand. Chinese imported oil is expected to surge from 1.7 mmb/d in 2001 to 4.0 mmb/d in 2010. Demand from FSU countries will eventually reverse from the declines from the economic collapse in the 90s.
The Rocky Mountain Region
The Rocky Mountain region contains the largest undeveloped drillable potential for additional natural gas supplies in North America. The National Petroleum Council estimates ultimate recoverable gas production in the Rockies at 388 tcf. The region's resources remain largely undeveloped with only 15% of recoverable hydrocarbons produced, compared to 58% along the Gulf Coast, 54% in the Mid-Continent and 30% in the Gulf of Mexico. This region includes the Uinta, Piceance and Greater Green River Basins as well as the now prolific Powder River Basin. The U.S. Energy Department estimates total in-place coalbed methane contained in western basins to be 620 tcf. Recent activity has increased the amount of this methane considered economically recoverable. With many additional CBM projects under way currently, this trend should continue.
Gas production in the region has increased from 3.1 bcf/d in 1990 to over 6 bcf/d in 2002. Essentially all of the recent increase comes from drilling coalbed methane in the Powder River Basin ("PRB") and development of the Jonah Field Complex in the Green River Basin ("GRB"). Pipeline capacity out of the region has increased from 2.0 bcf/d to 4.0 bcf/d at the same time. Production increased by 3 bcf/d while export capacity only increased 2 bcf/d. This led to a gas price differential "blowout" in the Summer/Fall of 2002 where Rockies gas prices, which normally are $.30 - $.60/mmbtu less than Henry Hub, were as much as $2.50/mmbtu less than Henry Hub. Export capacity utilization was ~ 97% in January 2003. The 12-month forward Rockies differential is currently $1.32/mmbtu.
Additional pipeline capacity is scheduled or proposed to come on line over the 2003 - 2005 years. The Kern River expansion to California is under construction and will add 900 mmcf/d of take-away capacity before the summer of 2003 (a 20% increase). Other projects are in the planning stage including two lines to the eastern Kansas pipeline interconnects (CIG and Kinder-Morgan) and others (Northern Border and WBI) to Northern Border Pipeline and the Chicago-area pipeline interconnects. These projects are designed to move an additional 1.5 bcf/d. Ultimate construction of any or all of the projects will depend on long-term demand for transportation services but should ultimately bring gas price differentials back to historical norms.
Company Strengths
Low G & A
Strong Cash Flow Potential
Lower leasehold price environment
Lower drilling cost environment
Company Maker Prospects
Experienced team of Oil & Gas Entrepreneurs
Successful Investment Bankers
Corporate Objectives
American's goal is to provide long-term investment returns for its
shareholders through the acquisition, development and management of
undervalued and high potential oil and gas properties, primarily in the
Rocky Mountain region.
To commence, American plans to drill an 60 well Coal Bed Methane (CBM)
program on the Powder River Basin (PRB) properties. With a 10 well program
already underway, this project should generate positive cash flow by the end
of the second quarter, 2003. Additional CBM prospects in the PRB and Red
Lodge will subsequently be drilled or acquired to create a solid financial
base of monthly cash flow and a rewarding future for American. We expect
to use this cash flow to acquire and develop additional prospects in our
area of interest, always focused on increasing cash flows and enhancing
shareholder value. Early drilling of the Mowery Shale project in spring
2003 should further enhance our cash flows as we expect oil prices to remain
above $25.00/bbl. In addition, American will limit its exposure to the
potentially high return Minnelusa prospect by letting its strategically
allied private partners take all the dry hole risk, giving only upside
return to American.
Business Strategies
 Concentrating on the North American Rocky Mountain region - management's
knowledge base
 Evaluating and investing in both oil and gas properties - diversify and
mitigate business risk
 Joint venture with industry leading partners and operators - mitigate
business risk while retaining upside potential
 Establish a source of consistent cash flow early in the life of the
company - solid foundation for growth
 Target projects with best potential for substantial long-life reserves,
low geological risk, and cash flow growth with limited financial risk
 Maintain a strong balance sheet, and financial and management controls
 Build a strong management and technical team - bring together the best oil
and gas knowledge of the Rocky Mountain region
Management has been able to clearly demonstrate the high probability of success and the low risk nature of drilling for CBM in these Rocky Mountain Region given their past experience. The company is drilling in proven areas of development. Reserve expectations are derived from the analysis of production from existing wells and volumetric computations.
The economics of the PRB development deserve special mention. Proliferation of drilling programs over the last 2-3 years increased production of gas available in the local Rocky Mountain region and thus saw local prices for gas drop to a $2-$3 dollar basis differential from Henry Hub gas prices. This created havoc with both private independents and particularly to public companies that saw their economic models disintegrate. The shutting in of existing wells and reduced drilling budgets have created favorable opportunities to acquire leases and farmouts on reasonable terms. Add the opening of the new Kern River Gas Pipeline in May/June 2003, which will divert much production to gas starved California and you have a significant economic opportunity.
American was created to exploit the unique opportunity in the Rocky Mountain Region and other North American areas of prolific reserves for the benefit of its stockholders.
American Oil & Gas, Inc., a formula for success!
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