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Asset Valuation of Freedom Oil and Gas

On May 11, 2020, Freedom Oil and Gas filed for Chapter 11 bankruptcy in Houston, Texas. According to the Houston Chronicle, the company said it was unable to pay its more than $10 million of debt as revenues have plunged during the global coronavirus pandemic.

A full reserve report and economic results for Freedom’s assets will be provided in this blog.

LandGate estimates Freedom’s July 2020 net cash flow to be $1,100,000 per month. Forecasted PDP reserves totaled 2.7 MMbbl Oil, 15.8 BCF, 1.7 MMbbl NGLs resulting in a PDP PV10 of $38 million. The estimated market value of the assets is $24 million. According to Haynes and Boone Bankruptcy Monitor, Freedom’s secured debt is $17,900,000 and unsecured is $9,043,930 totaling $26,943,930. Based on an asset value of $24 million, Freedom’s total Net Asset Value (NAV) would be -$3 million, signifying the reason for their bankruptcy protection. Given that the asset has over 14 MMBOE of undeveloped value in undrilled locations, the asset is attractive for operators seeking producing assets with acreage which can be developed at higher commodity prices.

LandGate uses its advanced technology to analyze the current asset value of Freedom’s Dimmit County wells and associated acreage in a matter of minutes. These same tools are available to any PowerVal subscriber, which offers users accurate allocated production data, geological interpretation, forecasting, and automated engineering. All of these processes are simplified down to an efficient workflow with PowerVal.

Asset Overview

Freedom Oil & Gas has 22 producing wells in Dimmit County, Texas. As of December 2019, the wells were producing 1,619 bbl/d oil and 9.0 MMcf/d gas. 

well map

Figure 1. Well Map

gross production summary

Figure 2. Gross Production Summary

In its fourth quarter activities report released in January 2020, Freedom reported a leasehold position of 4,878 gross acres (3,797 net acres).

Undeveloped well results for the area are marginally economic in the current price environment and as a result, the value of the leases on the market are almost negligible.

LandGate’s Eagle Ford Strat Column

Freedom has seen their acreage dwindle without exercising extensions as their lease

agreements expire. As a result, LandGate included PDP, PUD and Probable reserves in the reserve report but only assigned market value to the PDP.

Based on Freedom’s development and LandGate analysis, we used a horizontal well spacing of 650 ft to model additional drilling locations that have not been permitted (upsides). PowerVal enables users to model upsides in seconds. A user can also draw the upside wells very easily for better presentations and also create drilling schedules. See Figure 6 below.

The upsides from Freedom’s remaining undrilled acreage start becoming economic at $40/Bbl, and their PV20 value start becoming economic at $55/Bbl.

Figure 4. LandGate’s Eagle Ford Strat Column

LandGate’s Eagle Ford Type Curve

Figure 5. LandGate’s Eagle Ford Type Curve

Type Curve Parameters

Drawing Upside Locations  (Undrilled and not permitted wells)

IP30: 448 bbl/d & 852 Mcf/d

EUR: 674 Mbbls Oil, 1.2 BCF, 134 Mbbls NGLs

The 23 undeveloped locations total net reserves are 5.1 MMbbl Oil, 18.4 BCF, 2.0 MMbbl NGLs.

LandGate’s PowerVal software allows users to draw undeveloped locations to quickly model upside or development potential. 

Figure 6. Drawing Upside Locations

(Undrilled and not permitted wells)

Economic Results

Figure 7 below shows the estimated oil and gas reserves for PDP, PUD, and PROB as well as future net revenue to Freedom Oil & Gas as of 07/01/2020 using the 6/5/2020 NYMEX futures. The PUD and PROB PV10 value start becoming economic at $50/Bbl.

Reserve Report Summary

Figure 7. Reserve Report Summary

Net Cash Flow Summary and Net Production

Figure 8. Net Cash Flow Summary and Net Production

Ownership: 100% WI and 75% NRI

Contact LandGate for more information about valuation services or PowerVal subscription information. Learn more about PowerVal here.


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