Investment Startegy

we close deals

Gross Overriding Royalty Investment Fund
5 years ago, when the price of oil stood at $ 100 per barrel, the oil & gas companies used this positive environment across the sector, to additional gearing up the their balance sheets with secured bank loans, and used parts of these newly obtained financial resources to generously increase their dividend pay-out ratio. The higher dividend yield attracted new investors, who purchased the shares in the market and moved the price of their stock up. The oil executives were celebrated, and took an oil price above $ 100 per barrel for granted. The 60% collapse in oil price, forced the oil & gas companies to swiftly reconsider their dividend policy, which resulted in a drastic cut and led theirs publicly traded share price in crashing by up to 90%. The party mood in the funding sources - so far without success.

The two problems in the oil & gas sector are:

  1. the previous, up to about 90% loss in market capitalisation of small to mid sized oil & gas companies, has depleted their share capital in the balance sheet, and turns now a share capital increase at these current levels, associated with a significant dilution of the shareholders base, into the most expensive option to get the CAPEX founded. Regulatory issues such as a "change of control". Increases the complexity and the associated administrative work involved, and thus results in higher associated administrative work involved, and thus results in higher processing costs of a share capital increase.
  2. The balance sheets of oil & gas companies show through the previous, extensive debt leverage, couple with the 60% slump in gros revenue, a clear character of bankruptcy. Today, oil & gas companies no longer see themselves in a position to meet their debt service to its creditors on time. New, cheap banking loans as a way to facilitate finance are no longer available.

The investment strategy of the fund foresees to buy a 5% stake in the gross revenue of selected, in the energy sector operating companies and pays in advance to the oil & gas company, up to 6 times the amount of the stake in the gross revenue. The provision s contained in the purchase price and the purchase contract of the 5% sharing in the oil & gas company's gross revenue, provide that the same 5% stake in the gross revenue is paid to the fund not only during the first subsequent 6 years, but up to the depletion of the oil reserves. The fund will only enter into a financial engagement when qualified, independent third parties have confirmed a reserve base and/or a conventional operational business for minimum 12 subsequent years. The fund will not invest in risky exploration. In addition, the acquired share of the gross revenue is secured by a lien.

The advantages for oil and gas companies is that they will receive in advance a purchase price of maximum 30% and a minimum of 12% of their current gross revenue. This purchase price comes with two commercial compelling advantages such as (1) no dilution to the existing shareholders, and (2) and additional liabilities to the already overly levered balance sheet.

Such cash-flow sharing based financing is currently the only feasible and available option to distressed oil & gas companies. The companies have full power to decide in how to use the proceeds received.

The advantage for the fund investor is the risk minimising diversification by holding various projects in the portfolio, the fund participates in a median to long-term recovery n the oil price. The up to 5% star in the gross revenue of an oil & gas company, will be deducted as cost of sales and ensures accounting wise, that an oil oil price increase is reflected almost 1:1 in the find's return. In addition, the fund buys a revenue share for 6 succeeding years, but continues to receive thereafter, the same revenue sharing without needing to pay any additional purchase price. This "free" oil results in a significant increase in value for the fund.

Possible risks for the fund include among others the following aspects:

  • The oil & gas company files fo bankruptcy - The up to 5% stake in the company's gross sales are secured by a lien and remain in the fund's possession, even if there is a change of ownership - for example, the bank takes over assets - then the 5% stake in the field's grow revenues remains in the possession of the fund.
  • The oil price drops below $ 15 per barrel - We assume the the oil price is currently in the lower cycle and expect an oil price recovery in the coming 5 - 10 years.
  • The oil reserves of the producing fields are depleted earlier than anticipated - As the fund does not finance high risk exploration, bit focuses only on experiences of producing reserves and the expertise of independent third parties, we classify this risk not being a significant one.
  • The political risk - The fund will evaluate potential political risks and, where appropriate, secure such risks with political risk insurance.
The following presentation is not visible on mobile phones.
Draft Prospectus
The draft prospectus is based on Liechtenstein law for alternative fund structure. The draft prospectus needs to be amended in the sense that we do not intend to use other countries for cash-flow such as Luxembourg in order to optimise tax expenses.

We shall invest directly into the target country.
The following draft prospectus is not visible on mobile phones.
Additional Agreements with the Asset Management Firm
The additional agreements cover (i) the fee structure charged by the licensed asset manager in Liechtenstein, and (ii) a indemnity agreement between us and the licensed asset manager in Liechtenstein.
The following agreements are not visible on mobile phones.
Expected net IRR of the Fund
We have been advised by Deloite & Touche, other tax experts in Luxembourg and Canada. Implementing all the valuable advise can be retrieved from the "pdf" document showing that taking an IRR of 15% at source in Canada we would end up with an IRR for the fund investor in Liechtenstein of slightly over 11%. This calculation does not take into consideration of any future change in the oil price.
The following Excel spreadsheet, as "pdf" document is not visible on mobile phones.