2018
INTRODUCTION
SAXON OIL WI
Saxon Oil WI (“Saxon”) has identified a market opportunity to launch a global investment business focused on the oil and gas industry. Saxon is an investment vehicle set up as a corporate legal entity, which will acquire oil and gas wells in the U.S. and give shareholders the opportunity to invest in these wells through an equity interest. Saxon is managed by a consultancy organisation, WI Consultancy, which advises Saxon on a range of matters, including the type/profile of wells Saxon should acquire.
“Saxon Oil WI is an independent investment business committed to the investment of oil and gas wells in the oil rich basins of the United States of America. By focusing on the US we are positioning ourselves in the world’s largest economy, as it becomes one of the first countries to exit the turmoil of the financial crisis. Energy powers our global economy, brings people and nations together, and drives progress and advancement throughout the world. In the decades ahead, our energy needs will grow as economies expand, trade increases, and hundreds of millions of people work to attain higher standards of living. By investing in oil, you are investing in the future of the world economy.”
Saxon, on behalf of shareholders, will purchase the wells and drilling exploration will then commence. Saxon will be entitled to the profits generated by these wells and its shareholders will receive their share of these profits in proportion with their investment stake. These profits are issued to Saxon, and ultimately its shareholders, after costs have been deducted. The investment vehicle will aim to acquire a cross-section of wells, thereby allowing shareholders the opportunity to diversify their portfolio. Due to the nature of oil and gas production rates, the return on investment is likely to fluctuate throughout the year. As a result, average returns are expected to be between 2-5% per month for Saxon and will be paid out to shareholders through an annual dividend payment. A Delaware Series LLC, Saxon Oil WI, has been incorporated to acquire these small U.S. oil and gas wells. A Series LLC is essentially a group of separate LLCs contained within one master LLC entity. Therefore shareholders will only be exposed to the wells they have invested in and not other assets contained within separate LLCs in the investment vehicle.
Management Board 2014
THE MARKET Background on US Oil Market The crude oil industry in the U.S. began in Western Pennsylvania and Eastern Ohio; while in Canada it originated in Southern Ontario. However, the respective industries soon discovered much larger sources of crude oil elsewhere; in the U.S., the industry began to boom in Southern California, followed in quick succession by discoveries along the U.S. Gulf Coast, Oklahoma, and then both Western and Eastern Texas. Oklahoma’s early prominence, and the need to build long-distance pipelines to refining centres in the Midwest, gave rise to a pipeline terminus at Cushing. When crude oil was discovered in the Permian basin of Western Texas and New Mexico in the 1920s, pipelines were laid to Cushing and refining centres were built along the U.S. Gulf Coast. Gulf Coast crude oil was shipped North so it could connect to this pipeline system, while Canadian crude oil was transported South. The network of pipelines and storage tanks at Cushing made West Texas Intermediate (for more info see below) at Cushing a natural marker price for U.S. pipeline crude oil. In the present day, the price of crude oil in the US is dictated by pipeline scheduling considerations. The window between the 25th day of the previous month and up to the start of the next month is the scheduling period.(1)
was peaking and Alaskan oil was beginning to come on stream, has there been such a string of annual increases in production. As a result, in 2013 U.S oil production climbed to the highest level since 1989, although it remains well below the record production of 9.6 million barrels a day, set in 1970.
U.S. Oil Production Keeps Rising Beyond the Forecasts
The IEA forecast that American production will continue to rise in 2014 (by a further 782,000 barrels) setting production at, 8.3 million barrels a day.
The IEA estimates that in 2014 the 34 wealthiest countries in the Organization for Economic Cooperation and Development will consume less than half the oil used in the world. This would be a first; as recently as 2004 their share was over 60%, and in 2013 it was estimated to be 50.5%.Over the same period, the U.S.’ share of the market fell to 21% from 25%, while China’s share rose to 11% from less than 8%.
This will mean that U.S. oil production will have increased 46% in the three years from 2011 to 2014. There has not been a threeyear increase that large since the years 1921-24, exactly nine decades earlier. (2)
Importantly though, the U.S. is bucking this trend. Consumption in the U.S. was estimated to have risen in 2013, the first annual increase since 1999. In terms of production, the increase in U.S. production in 2013 exceeded the increase of 836,000 barrels a day in 2012. According to the United States Energy Information Administration the largest increase before that (of 751,000 barrels) was back in 1951. In percentage terms, the 15.3% increase in 2013 was the largest since an 18.9% gain in 1940. By way of background, American oil production fell steadily from the early 1990s through to 2008, but has since risen for five consecutive years, largely because of the increased production of shale oil. Not since the late 1960s, when production in Texas
What is West Texas Intermediate? West Texas Intermediate, often abbreviated as WTI, is a highquality grade of crude oil that is commonly used as a benchmark for oil prices. It is widely used in US refineries because of its domestic origin and composition, which makes it suitable for refinement into gasoline. It is classified as a light, sweet crude and it requires less processing than heavier oils to comply with environmental standards when burned as fuel. The New York Mercantile Exchange, or NYMEX, uses WTI prices as its benchmark, primarily because of the responsiveness of WTI prices to the condition of the global oil market. The widespread use of WTI in the US cemented it as the benchmark in the US domestic market. International entities later went on to adopt it in recognition of the importance of NYMEX, and as a result WTI went on to become a global benchmark for oil futures.(3)
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HISTORICAL PRICE ¢ 2nd January 1990 – $22.88 ¢ 4th January 2000 – $25.56 ¢ 4th January 2010 – $81.52 ¢ 2nd January 2013 – $93.14 ¢ 2nd January 2014 – $95.14.(4) (Data Supplied by EIA US Energy Information Administration)
Market Performance The International Energy Agency (“IEA”) has estimated that crude oil production in the U.S. rose by a record 992,000 barrels a day in 2013. This increase left U.S. production at 7.5 million barrels a day, with both November and December production estimated to have been over 8 million barrels a day. The rise in production contributed to relatively stable global crude oil prices in 2013, with prices set at around the same annual average levels of the previous two years. American consumption of oil also rose last year by 390,000 barrels a day or 2.1% to 18.9 million barrels a day. The IEA increased its estimate of U.S oil use in the final quarter of 2013, although it lowered its estimate of the increase in some other countries, including China. Over all, world consumption rose 1.4%, making 2013 the first year since 1999 that the use of oil in the U.S. rose more rapidly than the rest of the world. The IEA has confirmed that demand for crude oil is strong in the petrochemical industry in the U.S., which has benefited from the fact that rising supply has left prices lower than in many other countries. The IEA also estimates that demand for gasoline in the U.S. rose as a result of increasing consumer confidence and more sales of sport utility vehicles.
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A DECADE OF GROWTH U.S. Crude Oil Production Growth Contributes to Global Oil Price Stability in 2013 Average annual spot prices for Brent and WTI oil (2002-13) Dollars per Barrel 120 WTI
Brent
100 80 60 40 20 0 2002
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WTI spot prices averaged $98 per barrel (bbl) in 2013, up 4% from 2012 and the highest annual average since 2008. New pipeline and railroad infrastructure alleviated transportation constraints that had previously put downward pressure on WTI prices. The North Sea Brent spot price averaged $109/bbl, down 3% from 2012. Brent prices came under downward pressure as rising U.S. light sweet crude oil production reduced the need for U.S. imports, thereby increasing supplies of Brent-quality crude oil available to the global market.(5)
Cushing, OK WTI Spot Price FOB Dollars per Barrel 200
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0 1990
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Cushing, OK WTI Spot Price FOB
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MARKET OPPORTUNITY The size of the oil and gas industry is significant. For example, U.S. crude oil production over the last 5 years has surged by more than 50%, while the nation’s demand for oil is expected to keep on rising. The U.S. Energy Information Administration expects oil output to grow by an annual 800,000 barrels per day through 2016, when it will reach 9.5 million barrels per day.(6) Based on this data, the opportunity exists for investors to capitalise on the growing number of small oil and gas wells that are being re-worked or drilled for the first time. The commercial viability of investment in oil and gas wells is predicated on two key factors; the increasing price of oil coupled with ever-increasing technological advances in drilling. New techniques have ensured that drilling has become less expensive, more efficient and also more successful, which has necessarily led to an upsurge in exploration. As the industry improves its ability to draw new life from old wells and expands its expeditions into ever-deeper corners of the globe, it is providing a strong rebuttal to the long-running debate about when the world might run out of oil. The truth may be that for as long as it is profitable, man will find a way to locate and produce more oil than before. Consequently, previously mapped wells are now either being drilled for the first time or re-worked, providing investors with an abundance of opportunities to share in the profits generated form these wells. Saxon will primarily concentrate on niche plays, with productions rates ranging between 10 - 400 barrels per day. These are deemed too small for major operators, who focus on production rates of over 1,000 barrels per day. Such operators can incur large overheads and production costs can be significant, and therefore they instead concentrate on being geared too much larger well programmes. This is a distinct advantage to Saxon and the operators it partners with, as we have the flexibility of being a smaller, more dynamic business. Having carefully identified a portfolio of wells and developed trusted relationships in the U.S. oil and gas industry, Saxon now wants to provide investors with the opportunity to participate in the revenues generated from these wells.
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Benefits for our shareholders By investing in Saxon, shareholders will benefit from the usual protections given to investors, whilst also enjoying the advantages of receiving revenues derived from the oil produced by the well. Our shareholders will receive a dividend from successful well programmes and will have the opportunity to view the performance of the wells they have invested in throughout the year. We will endeavour to keep shareholders fully informed about their well’s progress and will also update them on any other well programmes Saxon is looking to invest in. As an investor in Saxon you will be part of the ever-expanding and lucrative oil and gas industry in the U.S.
Well Profile Saxon will primarily focus on developmental wells, as opposed to purely exploratory wells, and will therefore work with operators with experience in this field. Broadly speaking, a developmental well (also known as an exploitation well) is one located in an area with a proven track record for oil and gas production; an exploratory well by contrast is one located in an unproven area. Furthermore, on site all necessary steps are taken to maximise the chances of success, including drilling to a depth that is likely to be productive. By focusing investment on developmental wells in this way, Saxon will be seeking to reduce the investment risk associated with the broader exploratory drilling practices of the oil and gas industry.
Oil Operators The sourcing of oil and gas wells in the US is undertaken with the assistance of seasoned market professionals, who have longstanding relationships with various oil and gas operators in the US. Oil operators are responsible for the drilling and the day-today running of the wells on behalf of investors and other stakeholders. Not all wells are the same, which therefore means operators become experts in their chosen fields. Saxon will work with a range of independent operators and partner with those who have a proven track record in the type of wells that are being drilled. Independent operators are currently leading the production surge in the US. As of 2012, small and mid-sized operators accounted for over 50% of total US production up from 39% in 2005. This highlights the opportunity for dynamic operators, who are not caught by the constraints of corporate bureaucracy, to exploit credible opportunities for investors. By conducting careful and methodical research, Saxon will identify oil and gas wells that are run by operators with proven track records in delivering results for investors. This will be coupled with extensive geological and financial reporting on the proposed wells. Saxon will always give full disclosure on the history, track record and key personnel of the operator. We are committed to ensuring that investors have all the key information at their disposal in order to make an informed decision about whether to participate in this unique opportunity.
THE MANAGEMENT Saxon places great importance on the role of corporate governance in all aspects of its business activities. We believe it is essential to have a robust structure in place to ensure that the interests of all shareholders and stakeholders are balanced and protected. As a result we endeavour to be a transparent business by always putting the values of key stakeholders at the heart of everything we do. Saxon has therefore appointed an independent manager to look after the affairs of the investment vehicle; WI Consultancy will be charged with all the managerial aspects of Saxon including corporate governance. In practice, transparency will be achieved by giving shareholders access to key financial information about how the wells are being run, including the ability to look at the monthly operating expenses of the wells and the monthly payments Saxon receives as per its investment stake in the wells. Prospective shareholders will also have the opportunity to request geological studies on the wells in order to give them all the data they need to assess the viability of the project(s).
WI Consultancy will have no other business interests other than managing the affairs of Saxon. The Non-Execs of WI Consultancy will have full access to information on the potential drilling projects. This includes reviewing the monthly operating expenses and advising on strategy for the development and direction of Saxon, whilst always ensuring that shareholders’ interests are a primary concern when these decisions are taken.
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DIRECTOR PROFILE Toby Birch BOARD MEMBER
Toby Birch is an authority on megatrends and markets with a proven history in commodities. His career in asset and hedge fund management commenced in 1990, working for companies such as Bank Julius Baer, Mees Pierson and Old Mutual International in senior investment positions. He made his reputation by forewarning investors of the financial meltdown and was the only person on record to publish a book stating that the markets would implode in 2008. ‘The Final Crash: Addictive Debt and the Deformation of the World Economy’ was one of the most prescient predictions of the crisis. Following its publication he became a regular on the conference circuit covering diverse themes such as commodities, agriculture, crypto-currencies and precious metals. He is now a Director of a number companies and investment funds aligned with his passion for megatrends. Toby was made a Chartered Wealth Manager in 2014 and was granted the status of Chartered Fellow of the Chartered Institute for Securities and Investments in 2010, achieving an A grade in the Integrity paper. He also holds the Institute’s Islamic Finance Qualification and Certificate for RDR Compliant Qualifications.
Keith Graham BOARD MEMBER
Keith, a seasoned and skilled professional in the offshore financial services industry, has over 30 years of international business management experience. Over the years he has held board directorships and senior management positions at Close Brothers, Bank of Scotland, IFG Group, Chase Private Bank and Hill Samuel Private Bank. During this period, Keith has been responsible for managing fiduciary businesses based across Jersey, Guernsey and the Isle of Man holding a range of different asset classes. Since establishing his own business consultancy practice in 2011, Keith has used his wealth of experience and expert knowledge advising companies on business restructuring, strategic planning, mergers and acquisitions and corporate governance. Keith is a member of the Society and Estate Practitioners.
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Reference (1) (2) (3) (4) (5) (6)
Source: https://www.theice.com/publicdocs/ICE_Crude_Oil.pdf Source: NYT - http://www.nytimes.com/2014/01/25/business/us-oil-production-keeps-rising-beyond-the-forecasts.html?_r=0 Source: Wise Geek - http://www.wisegeek.com/what-is-west-texas-intermediate.htm EIA - US Energy Information Administration Source: EIA - http://www.eia.gov/todayinenergy/detail.cfm?id=14531# Source: http://www.fool.com/investing/general/2014/01/05/when-will-us-crude-oil-production-peak.aspx
Disclaimer: This confidential document is published by Saxon Oil WI (“Saxon”). Saxon is not authorised by the United Kingdom’s Financial Conduct Authority. This document does not constitute, nor form part of, any offer or invitation to sell, allot or issue, or any solicitation of any offer to purchase or subscribe for, any securities in the United Kingdom, the United States or any other jurisdiction, nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefore. Any offer to subscribe for or purchase shares in Saxon (“Shares”) shall be made in accordance with applicable law. Any purchase or subscription of Shares or other securities should be made solely on the basis of the information contained in the LLC Agreement of Saxon dated 4th August 2014. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this document or on its completeness, accuracy or fairness. The information in document is subject to change. However, Saxon does not undertake to provide the recipient of this document with any additional information, or to update this document or to correct any inaccuracies, and the distribution of this document shall not be deemed to be any form of commitment on the part of Saxon to proceed with any transaction or arrangement referred to herein. This document has not been approved by any competent regulatory authority. Potential subscribers for the Shares should consult a professional advisor as to the suitability of the Shares for the person concerned. None of Saxon, its subsidiary undertakings, affiliates nor any of their respective directors, officers, employees, advisers, agents or any other person accepts any responsibility or liability whatsoever for, or makes any representation or warranty, express or implied, as to the truth, accuracy, completeness or fairness of the information or opinions in this document (or whether any information has been omitted from it) or any other information relating to Saxon, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. The contents of this document should not be considered to be legal or tax advice, and potential subscribers for the Shares should consult with their own counsel and financial advisors as to all matters concerning the Shares. SAXON OIL WI 10
www.saxonoil-wi.com
Saxon Oil WI 64 Earth Close, Landmark Square Suite 3B P.O. Box 1978 Cayman Islands KY1-1104 Office +1 (345) 923 6215 Email info@saxonoil-wi.com Email info@workinginterest-consultancy.com