the australian investor

Kansas and Colorado have become the new frontiers for a rejuvenated Australian company, Pawnee Energy Limited

A pending name change to Pawnee Energy Limited and a public offer is set to transform Island Sky Australia Limited from its original role as a dispenser of air-to-water making machines to unconventional oil prospectors in the United States.

Island Sky Australia sold most of its interest in air-to-water making concern, ISK Florida, in 2012 and has since assembled a team of very experienced oil and gas professionals to become the Directors of the new company, Pawnee Energy Limited, which is about to enter the

American oil and gas exploration and production industry.
To that end, in September 2013, the company entered into a number of agreements with T H McElvain Oil & Gas LLLP which has been operating in the oil and gas sector in the United States since the 1920s. Under those agreements, Pawnee Energy is entitled to acquire a balanced portfolio of non-operated interests in oil and gas leases located in the states of Kansas and Colorado.

The agreements were facilitated by one of the proposed Directors of Pawnee Energy Limited, and a resident of Colorado, Jayme McCoy, who was once the Managing Director of Sundance Energy, now one of the largest ASX listed oil and gas prospectors in North America.

In order to fund this venture and regulatory and operational expenses, Pawnee Energy is offering up to 30 million fully paid ordinary shares at an issue price of $0.20 per share to raise up to $6 million. There is provision to accept oversubscriptions of up to a further 10 million fully paid ordinary shares at $0.20 each to raise an additional $2 million.

The raising is subject to a minimum subscription of $5 million and the closing date of the offer is 16 December 2013.

On 27 November 2013, the Company also announced a bonus options issue of one option for every two ordinary shares held on the record date of 3 March 2014. The bonus options will be listed, have an exercise price of $0.25 and an expiry date of 28 February 2015.

Neil Young, the proposed CEO of Pawnee Energy Limited, has nearly 20 years’ experience in the energy sector in executive and business development roles in Australia and internationally. He has worked for both large and small oil and gas companies including Santos Limited, AO Energy Limited and Adelaide Energy Limited. He has substantial experience in the field of unconventional petroleum.

When asked to comment on the company’s entry into the American oil and gas prospecting market, Neil replied, “The strategy for the company originally is not to operate the assets but rather to, in oilfield terms, be the non-operating party and what that means is we can keep a very lean and mean structure. The vendor of the leases, McElvain, has been around for a hundred years, is privately owned, worth a few hundred million dollars and is very experienced in that part of America.

“Headquartered in Denver where they have 50 or 60 employees, McElvain will provide all the engineering, geological, drilling and accounting services and we come in as a minority party contributing capital and a degree of expertise which is a fairly common joint-venture structure in the oil game.

“The prospects that we are acquiring are focussed on oil, not gas, and we believe that’s a commodity with better long-term fundamentals and the work that’s already been done in the particular area we’re going into makes it, from a geological perspective, fairly low risk.

The economics which are being demonstrated by the wells drilled to date by McElvain are pretty favourable,” said Neil.

When asked why Pawnee Energy had decided to prospect for oil in America and not Australia, Neil replied with the conviction of one quite knowledgeable of the international oil industry: “In the oil game, the cost of doing business in America, compared to Australia, is a fraction. For instance, we will be participating in the first quarter of next year and thereafter in horizontally-drilled wells that are fracked and completed at a total cost $3.5 million. In the Cooper Basin, that sum would get you a simple, vertical well and wouldn’t even touch the sides of a horizontal, fracked well, and that’s because comparatively deeper wells are needed here.

“And it’s easier to get comparatively smaller deals started in America, particularly if you have had some experience in various countries, and therefore more of an international perspective, as do the proposed Directors of Pawnee Energy. However, Australia is quite a unique country for raising capital for small resource companies and America is not very good at that,” said Neil.

Neil Young seemed fairly confident when asked if he expected the public offering would reach its target.

“The money is never in until it is in but the plus factors we have going for us are a pretty heavy-hitting broker, our sole lead manager, GMP Securities Australia, which usually acts for much larger companies with much larger raisings. Their involvement obviously reflects the status of the people on the Board of Pawnee Energy and the assets involved. We’ve also received a very enthusiastic response from those we have talked to.

“The negatives are the time of year, obviously late in the year, and resource stocks generally are somewhat unloved compared to internet stocks. Nevertheless, I’m quietly confident, but nothing is ever guaranteed,” said Neil.

“Assuming we raise the minimum of $6 million, $1.5 million will be spent on buying leases, $2.5 million on drilling and a bit of seismic and there will be the cost of the raise and sorting out all the regulatory matters associated with the running of a public company for a year until we start generating oil sales and cash flow in mid 2014 and have booked reserves and than have the opportunity to access different forms of capital down the track.

“Why should investors invest? In a nutshell, compared to many small raisers, we have a pretty high-quality team who all respect each other and who are prepared to come in and grow the business. We have no one who is being greedy in terms of giving themselves massive amounts of free shares or anything like that. We can see a very clear path to short-term activity in terms of the coming on of wells early next year and a relatively low geological risk to those wells becoming oil producers and producing cash flow by mid-2014,” said Neil.

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