Gale Force Petroleum Divesture Grosses More than Market Capitalization

Gale Force Petroleum Divesture Grosses More than Market Capitalization

By: Dylan Sikes - AllPennyStocks.com News

Friday, July 25, 2014

Companies the world over seem to be interested in the Texas oil boom. Talisman Energy, one of Canada’s largest independent oil companies, saw its shares shoot ahead by about 13 percent on Wednesday after confirming that Spain’s Repsol approached them to discuss some possible transactions. Talisman, which trades on both the Toronto and New York Stock Exchanges under the ticker TLM, was tight-lipped about details, but Wall and Bay Street players interpreted the discussions as a possibility that Talisman may sell a chunk of its assets or potentially be an acquisition target of Repsol. On a smaller scale, dually-listed Gale Force Petroleum Inc. (OTCQX:GFPMF) (TSX-Venture:GFP), a company focused on acquiring underdeveloped oil and gas reserves, has been padding its bank account lately by divesting assets in Texas. The company’s portfolio contains oil and gas properties in Texas, Tennessee and West Virginia.


Less than two months ago, Gale Force sold non-core properties in East Texas for an aggregate price of $2.15 million. The company said it was using the proceeds to pay down $1.0 million on its bank loan facility and to pay $345,000 on a $600,000 short-term loan that it received in March. With the payments, the loan facility stands at $4.75 million. The short-term loan matures at the end of September.

Looks like some more cash is going to be available to Gale Force to lower the balances on debt in the near term. The company said on Thursday that it has penned an agreement with an undisclosed buyer to sell an 81-percent working interest for its properties in Henderson and Anderson Counties in Texas, dubbed the “Texas Reef” properties. With respect to the buyer, Gale Force only commented that the company is an experienced, well-capitalized E&P operator with operations in several southern U.S. states, including land adjacent to the Texas Reef properties, where the buyer recently drilled six vertical and two horizontal wells. Additionally, Gale Force is selling its 90-percent interest in a four-mile natural gas gathering system on the properties. The total deal has a value of $5.85 million for Gale Force and is expected to be closed by August 22.

The company intends to spend about $2.5 million of the proceeds to further pay on its senior bank facility and completely pay off any outstanding subordinate notes, which will leave about $2.5 million for developments on core properties.

Gale Force will retain an average 12 percent working interest, plus a 3 percent royalty interest in four producing wells on the properties. For the 3,500 undeveloped net acres, the company will hold an average 9 percent working interest and a 5 percent royalty interest. Upon completion of the transaction, the buyer will become the operator on the properties and plans to commence horizontal drilling of several new wells.

"The Company will benefit from the new operator's experience drilling and operating in the area, while participating in the upside with its retained interests," said Michael McLellan, Gale Force Petroleum’s Chief Executive Officer, in a statement Thursday.

The two divestitures have grossed $8 million for Gale Force since late in May. That’s an interesting figure considering that the company only sports a market capitalization around $4.6 million. US-listed shares closed Thursday’s trading at 5.9 cents each. Proper due diligence is, as always, encouraged.

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