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Report to the Shareholders, 2007
You must all be aware of the dramatic increase in oil prices over the recent past, and you must be wondering what it means to WYOIL.
In our first report to the shareholders, in 2000, I made note that the only way that the company could survive (days of extremely low prices) was to finance the remedial work required on oilfields purely with equity, since the cost of debt service would make it impossible to survive such difficult times. The company started down that road from the day it was organized, but our financiers very shortly thereafter changed their funding from equity sales to debt placement due to changes in stock markets at that time.
Over the years, we watched the price of oil creep up, but we also watched the costs of maintaining, operating, bonding and insuring go along with it, and the financing to service these requirements came only with very expensive debt. True to our first pronouncement, the cost of servicing this debt, and the fees and commissions to raise it far exceeded any possible revenues from production.
Over the past few years, the directors met with several different potential sources of new investment to replace the existing debt, but the profitability and obligations were such that the company was not attractive to any equity or new debt opportunities. In addition, the changes to the investment climate in the USA due to the Sarbannes-Oxley act (as a result of the Enron and World Comm collapse) dramatically changed the size of company that could afford to become involved in public offerings. The cost of even trying to put the company into play would have been several million BEFORE it would be in a position to be presented to public markets as an initial purchase offering. Obviously, that was in no way possible.
When this became untenable (in 2006) a buyer for the most environmentally sensitive properties was sought (South Glenrock unit “A” and East Big Muddy – on the shores of the Platt River where any kind of accidental release would be financially devastating for the company) and these properties were sold. This risk reduction was the first step in making the company presentable to new investment.
In 2007, when debt obligations had become due and payable, the next and most critical phase was tackled. To decrease past due debt, one of the less likely properties to be developed for increased production (Rawhide) was exchanged for several notes with their holders and representatives. To pay substantially all of the remaining financial obligations (financing “fees”, commissions and penalties and various taxes) of the company, the last of the South Glenrock properties near Casper, the “C” unit was sold to Ameriwest Energy Corp., leaving the company with about half of its former reserves and production.
While that may sound less than ideal, please bear in mind that the company was not sustainable at all during low oil price years – due to only inadequate debt financing being available – and a price had to be paid to maintain the shareholders’ assets until market conditions could facilitate successful restructuring. That price was more than 50% of the reserves of the company.
That is now complete.
I am pleased to announce that WYOIL is now in a position to continue business with no likelihood of any outside influence being able to compromise our business plan. The company can now proceed to present itself to the financial world as a solvent, stable and current entity with substantial assets to be developed, specifically, the Dugout Creek field near Buffalo WY. During 2008 we intend to develop a plan for enhanced recovery for the Dugout Creek field.
With the shift of emphasis to that area, the office has been moved from Sheridan WY to facilities in Buffalo WY (near Dugout Creek unit). The remaining operations in the Bighorn Basin will be continued by staff located on the West side of the Bighorn mountains with much less demand on travel for key personnel who are now free to concentrate on Dugout Creek. There is considerable work yet to be done on the Dugout Creek property, and it will proceed by re-investing operating profits of the company over the coming months. This will increase production in Dugout and also several other oil fields.
The best way to increase the company’s size and revenue is to bring in new equity investors, and use that money to develop the Dugout Creek property as a CO2 prospect. There is no option to do so as a US public company, as the capitalization to fund a sustainable public company is now several times greater than we require for the development of the Dugout Creek leases. Also, the considerable cost of preparing for an initial offering would preclude the possibility of re-investing in the required maintenance at Dugout and other properties. That leaves only private placement as the acceptable method.
With CO2 now available nearby and EOR demonstrated in the region as viable process, this is now an attractive proposition to investors. There are potential CO2 sources, one with pipeline facilities a few miles from the Dugout Creek property. This now means that the cost of such a project is greatly reduced, but still represents about $50M in requirements. Obviously, this will not be possible from retained earnings, so we are aggressively seeking a development partner.
Respectfully,
PM Dolan
Chairman
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