pyramid drilling company, llc a $60,000,000 limited liability corporation confidential presentation...
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Pyramid Drilling Company, LLC A $60,000,000 LIMITED LIABILITY CORPORATION
CONFIDENTIAL PRESENTATIONFebruary 2012
This Presentation has not been approved or disapproved by the Securities and Exchange Commission, any state securities commission or any other regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of this offering or the accuracy or adequacy of this Information Memorandum. Any representation to the contrary is a criminal offense. An investment in the Company is speculative and involves a high degree of risk. Investors must be prepared to bear the economic risk of their investment for an indefinite period and be able to withstand the total loss of their investment.
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NOTICE TO POTENTIAL INVESTORSThis Confidential Information Memorandum (the “Memorandum”), based upon information supplied by Pyramid Drilling Company, LLC (“Pyramid” or the “Company”) and its managing member, Firemoon Energy, LLC (the “Managing Member” or “Firemoon”), is being furnished solely for the consideration of eligible investors who have the knowledge and experience in financial and business matters and the capability to conduct their own due diligence investigation and evaluation in connection with the investment described herein (the “Potential Investors”). This information is supplied by the Company, solely for use by Potential Investors in connection with their consideration of an investment of $15,000,000 in the Company. This Confidential Information Memorandum presents information with respect to the Company as of the date hereof. The Company does not intend to update or otherwise revise this Amendment following its distribution, and Potential Investors should not expect the Company to do so.Neither the Company nor any of their respective affiliates, employees, or representatives make any representation or warranty, expressed or implied, as to the accuracy or completeness of any of the information contained in this Confidential Information Memorandum or any other information (whether communicated in written or oral form) transmitted or made available to prospective investors, and each such person, expressly disclaim any and all liabilities relating to or resulting from the use of this Memorandum or any other such information by perspective investor, their affiliates or representatives. Sigma Capital Group has not independently verified the information contained herein. Only those particular representations or warranties, if any, which may be made by the Company to the investor in a definitive, written Private Placement Memorandum (“Private Placement Memorandum”), and subject to such limitations and restrictions as may be specified therein, will have any legal effect.CONFIDENTIALITYEach recipient agrees that the subject matter hereof and all of the information contained herein is of a confidential nature and that the recipient will treat it in a confidential manner and that they will not, directly or indirectly, use for any purpose, disclose or permit its affiliates or representatives to use for any purpose or disclose any information regarding its receipt hereof or any information contained herein to any other person, or to reproduce this Memorandum, in whole or in part, without the prior written consent of the Company.FORWARD-LOOKING STATEMENTSThe market analysis and financial projections presented in this Memorandum represent the subjective views of the management of the Company and are management’s current estimates of future performance based on various assumptions which management believes are reasonable, but which may or may not prove to be correct. There can be no assurance that management’s views are accurate or that the projections will be realized and actual results may vary from those shown. Industry experts may disagree with these assumptions and with the management views of the market and prospects for the Company.NO SOLICITATIONThis Memorandum does not constitute an offer to sell or solicitation of any offer to buy any securities. The purpose of this Memorandum is to assist prospective investors in deciding to proceed with a further investigation and evaluation of the Company in conjunction with their consideration of the investment in the Company. This Memorandum does not propose to contain all information that may be material to an investor ad recipients of this Memorandum should conduct their own independent evaluation of the Company. This Memorandum has not been filed or reviewed by, and the securities offered have not been registered with or approved by, the Securities and Exchange Commission (“SEC”) or any securities regulatory authority, or any state, nor has the SEC or any authority passed upon the accuracy or the adequacy of this Memorandum.CONTACT INFORMATIONNo person has been authorized to provide any information to Potential Investors with respect to the Company or the proposed offering except the information contained herein. Disinterested party should immediately return the information to the address listed below. Neither the Company nor any of its representatives should be contacted directly, and all communications, inquiries and requests for information should be directed to the following individual:
Sigma Capital Group, LLCBruce Woodry, Chairman and CEO
906-483-0406
Disclaimers
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Introduction
Table Of Contents
• Summary• Oil Shale Overview • Market and Competition • Pyramid Drilling Strategy• Pyramid Operations• Investment Opportunity
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Summary
• This presentation outlines an original concept initiated by Everett Toombs and Gary Van Cleave and previously used by Peak Energy.
• Pyramid focuses on the Bakken, one of the largest (possibly the largest) continuous oil accumulations in the world.
• Advances in horizontal drilling has made the Bakken oil shale possible
• Mr. Toombs Everett is known as one of the preeminent horizontal drilling experts having drilled 20K ft. wells with 10K ft. laterals and very knowledgeable of the Bakken shale play.
Pyramid is seeking $60m to purchase rigs, upgrade for cold weather use, purchase tubulars, establish a man camp, and working capital.
Pyramid is seeking $60m to purchase rigs, upgrade for cold weather use, purchase tubulars, establish a man camp, and working capital.
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• Summary• Oil Shale Overview • Market and Competition • Pyramid Drilling Strategy• Pyramid Operations• Investment Opportunity
Table Of Contents
6
Oil Shale Overview
America is unable to provide supply it’s own energy
• US has imported over 50% of it’s petroleum fuel requirements since 1993
• By 2020 imports are forecast to grow to 58%
• Traditional domestic energy production has failed to meet the growing US demand for energy
• New sources, wells and rig are needed if the US
wishes to maintain energy security
US Petroleum Consumption vs. Domestic Supply1950 to 2020F
Mill
ion
barr
els
/ da
y
2020 shortfall
8.5 mbbl/day
Source: EIA
1993 50%
imports
Estimated 10 year demand for development investment $__ to $__ billion dollars
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Oil Shale Overview
Drilling in the Williston/ Bakken is key to closing the production gap
Growth in Bakken Production by StateBarrels/Day 2011 to 2010F
Source: EIA and Sigma Capital Analysis
Wells are 9-10,000 ft in depth in a basin of 25,000 sq mi. with 40 API oil.
The transferring of long horizontal wells with multi-staged fracture technologies from the Barnett shale in Texas,
Typical wells now produce initial rates in excess of 1000 bopd and up to 500,000 recoverable barrels of oil.
•
Estimated 10 year demand for E & P investment $18 to 45 billion dollarsEstimated 10 year demand for E & P investment $18 to 45 billion dollars
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Oil Shale Overview
Bakken Formation
• The Bakken Formation was initially produced in the 1950's on the western edge of the basin.
• In April 2008, the U.S. Geologic Survey raised its estimates of recoverable oil reserves in the Bakken Formation of North Dakota and Montana as high as 4.3 billion barrels of oil, represented about a 2,400% increase over earlier estimates
• Technical studies in the overlying Three Forks formation identified a clastic-silt, low porosity/ low permeabiltiy zone nearly doubling reserves per well.
Pyramid focuses on the Bakken, one of the largest (possibly the largest) continuous oil accumulations in the world.
9
Oil Shale Overview
Management has selected fast growing areas of oil shale industry
The Bakken
Source: EIA
North Dakota Average Monthly Production2005- September 2011
Source: Lux Research, Inc
Source: AWEA
Bakken Rig Operators
Source: Bloomberg New Energy Finance
Chart: # of Wells Drilled in North Dakota to Oil Prices
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
# o
f W
ell
s D
rill
ed
-
20
40
60
80
100
120
Oil
Pri
ces
(in
$)
ND Prices Wells drilled WTI
Source: EIA
Bakken is the Premier shale oil play in North America
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Oil Shale Overview
Fracturing is the key to improved production in oil shale
•
Pyramid is investing in an underserved segment of the fastest growing area of renewables
Bill
ion
US
Dol
lars
US Oil Shale Production MBOE 2005-09
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Oil Shale Overview
Fracturing is the key to improved production in oil shale
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• Summary• Oil Shale Overview • Market and Competition • Pyramid Drilling Strategy• Pyramid Operations• Investment Opportunity
Table Of Contents
13
Market & Competition
Management has selected fast growing areas of oil shale industry
Bakken Rig Count
Source: EIA
North Dakota Average Monthly Production2005- September 2011
Source: Lux Research, Inc
Competitors
Source: AWEA
Competitive Rig Count by Developer
Source: Bloomberg New Energy Finance
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Introduction
Table Of Contents
• Summary• Oil Shale Overview • Market and Competition • Pyramid Drilling Strategy• Pyramid Operations• Investment Opportunity
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Pyramid Strategy
Four Part Strategy
• Leverage deal flow of Management
• Leverage Shale Oil Drilling Expertise of Mr. Toombs
• Leverage Relationships to accelerate for Success
• Structure projects for optimum returns
Same highly successful strategy as Mr. Van Cleave and Mr. Toombs initiated at Peak
Same highly successful strategy as Mr. Van Cleave and Mr. Toombs initiated at Peak
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Oil Shale Overview
Leverage deal flow of Management
RTSGary Van CleaveEverett Toombs
Pyramid is entering into the fastest growing, most profitable area of E & P in the USPyramid is entering into the fastest growing, most profitable area of E & P in the US
Source: Clean Energy Pipeline
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Pyramid Strategy
Leverage Shale Oil / Bakken Drilling Expertise of Mr. Toombs
• Experience in Bakken– Deep wells (x to y ‘)– Wide radials (a to b’)– Fracturing (Fracking) completion– Bakken play, known geologies– Low cost driller
• .
Pyramid is able to drill difficult wells cost effectivelyPyramid is able to drill difficult wells cost effectively
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Pyramid Operations
Pyramid benefits from affiliated companies
Pyramid Paint Rock RTS
Mutually Reinforcing Expertise Affiliates generate deal flow at low cost
Strong operational talent pool
•Drilling Speak • Lease and Drilling funding • People Speak
Pyramid benefits from affiliated companiesPyramid benefits from affiliated companies
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Development Drill Program Operation
Unimproved Leases
Anticipated value at financial exit
Time
Val
uatio
n / i
nves
tmen
t
• Discussion
• Cost
• Margin
• Capital
• ROI
Pyramid Drilling Strategy
Pyramid: Drill in program
Retained Equity stake allows participation in ongoing operations
Drilling CapitalDrilling Capital
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Development Drill Program Operation
Unimproved Leases
Anticipated value at financial exit
Time
Val
uatio
n / i
nves
tmen
t
• Discussion
• Cost
• Margin
• Capital
• ROI
Pyramid Drilling Strategy
Pyramid: Farmout program
Retained Equity stake allows participation in ongoing operations
Drilling CapitalDrilling Capital
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Development Drill Program Operation
Unimproved Leases
Anticipated value at financial exit
Time
Val
uatio
n / i
nves
tmen
t
• Discussion
• Cost
• Margin
• Capital
• ROI
Pyramid Drilling Strategy
Pyramid: Contract program
Retained Equity stake allows participation in ongoing operations
Drilling CapitalDrilling Capital
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Introduction
Table Of Contents
• Summary• Oil Shale Overview • Market and Competition • Pyramid Drilling Strategy• Pyramid Operations• Investment Opportunity
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Founder, Chairman and Chief Executive Officer of Sigma Capital Group, Inc. 14 years of increasing responsibility with industrial conglomerates includes Sperry Univac, and General Electric. Founded several entrepreneurial companies, and currently serves on the board of several energy companiesBS Electrical Engineering, selected for advanced coursework in marketing and finance at General Electric’s Crotonville Campus where he was given the P.E.A.K Award for outstanding contribution.
Bruce WoodryManaging Member
•.
Pyramid Operations
Experienced management team is poised for growth
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Pyramid Operations
Board of Directors
Advisory Board Role
Board of Directors
• Authorized [5] person board- Gary Van Cleave, CEO- Everett Toombs, President- Bruce Woodry, Chairman- Investor- Investor
Advisory Board Members
• Vinton Rollins• Lynn Van Cleave
Board of Directors Role
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Pyramid Operations
Readiness for rapid deployment based on year of operating experience
Readiness for Projects and Drilling
Drilling Expertise
Geographic knowledge
Transaction FlowFinancing
People and Skills
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Market & Competition
Drill screening and decision process is in place
• Inbound Transaction:• Deal flow by Gary Van Cleave, RTS & Sigma
Capital
• Project Screening• Geography, geology, type of well, in-
house availability of resource, duration of project
• Maintain tight industry focus to avoid pitfalls
• Evaluation• “Is this the most lucrative use of our
resources?”• Due Diligence
– Appropriate, detailed but aggressive due diligence
• Go Forward Decision– Fast decisions are critical to react to market
opportunities– Contract
• Finalize contracts – Mitigate risk
Project Screening
Initial review to determine project viability
Evaluation
Management & Financial
Due Diligence
True Status of contracts, technology, permitting etc…
Go Forward Decision
(Yea or Nay)
Finalize Contracts
Inbound Transaction
Request for drilling
Project Screening
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Market & Competition
Investment criteria
•Business model and deal economics consistent with the Company’s target return profile.
•Are within the Company’s geographic investment focus.
Unless an exceptional opportunity is available, the Company will primarily consider investment in projects that fulfill the following minimum criteria.
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Pyramid Operations
Economics
Billing/Day
0
5
10
15
20
25
30
35
40
45
50
Farm in Farm out Contract
Margin/Day
0
5
10
15
20
25
30
35
40
45
50
Farm in Farm out Contract
• Bill rate:• $29000/date, typical
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Pyramid Operations
Organization
Everett Toombs, President
HSEDrilling
SuperintendentOperational Accounting
Secretary
Office Manager
Rig 1 Rig 2 Trucks
2 Tool Pushers 2 Tool Pushers 4 Truck Drivers
Hr
4 crew4 drillers4 Derrick men4 motormen8 floor hands
4 crew4 drillers4 Derrick men4 motormen8 floor hands
Summary
30
Pyramid Operations
Rigs
• Why National Oilwell Varco? – – –
• New Rigs– High Horsepower– Mobile to reduce mobilization costs
• Selection of options– – –
• Delivery times– – –
• Transport to Site– –
• Price and Terms– – – See budget, following
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Pyramid Operations
Timeline
Mar Apr May June July Aug Sept Oct Nov Dec Jan FebMar Apr May June July
Order trucks
Funding complete
Order rigs
Rigs Arrive
TrucksArrive
Equipment
People
Regulatory and Siting
Mar Apr May June July Aug Sept Oct Nov DecJan Feb Mar Apr May June July
Select Man Camp SIte
Funding complete
Permits
Start Hiring
32
Pyramid Operations
Income Statement
33
Pyramid Operations
Balance Sheet
34
Pyramid Operations
Cashflow
35
Pyramid Operations
Rig Budget Ln. # Item Cost
AC Ideal Rig, Consisting Of: 1 Rig Drilling Structures & Assemblies 2 Hoisting Equipment 3 Rotary Equipment 4 Top Drive System 5 Drill Floor Handling & Tools 6 Tubular Handling Equipment 7 Electrical Power Generation & Distribution 8 Bop Stack 9 Bop Accumulator Unit
10 Choke And Kill Manifold Equipment 11 Driller's Cabin/Amphion Controls With Drawworks 19,516,106 12 Hydraulic Power Supply & Control System 13 Mud Pumps 14 High Pressure Components 15 Mud System & Mud Return 16 Well Measurement, Surveying & Logging 17 Air Compressor Package 18 Water & Fuel Supply 19 Auxiliary Components 20 Electrical Rig-Up 21 Mechanical Rig-Up 22 Documentation
ON-SITE START UP & FIRST WELL SUPPORT Per Rate Chart MISCELLENEOUS OPTIONAL ITEMS
1 Mast Moving Dollies 418,448 2 Rotating Mousehole Upgrade 87,400 3 Add. 200 Bbl Water Tank 69,231 4 Crt-350 - Optional 471,976 5 Walking System - Optional 1,880,683
2,927,738 Total RIG PACKAGE EQUIPMENT 22,443,844
• Discussion
36
Pyramid Operations
Man Camp Budget
• Discussion
37
Introduction
Table Of Contents
• Summary• Oil Shale Overview • Market and Competition • Pyramid Drilling Strategy• Pyramid Operations• Investment Opportunity
38
Market & Competition
Investment structure provides multiple cash flows and rolling principal FIX
Loan Interest
Pyramid Company Capital
Convertible Development Loan
Carried Equity in Project
Loan Principal
Carried Equity
Investor Returns
Equity Returns
Initial Investment: Investment structured as convertible loan and carried equity• Loan interest planned to be 30% of investment amount for <12 months, prorate monthly at same rate for
development lasting over 12 months • Carried equity planned to be 5% of total project equity
Financial Close: Development complete and loan repaid through project finance • Loan interest repaid to investors on project close • Loan Principal returned as Pyramid capital to be reinvested
Ongoing Operations: Construction completed and plant operating normally • Equity position in individual projects provides ongoing cash flow for individual projects
Anticipated Returns: • With losses included the aggregate return from loan interest is anticipated to be 12-15%• With equity returns included return is expected to be north of 25% over the life of the Company
Principal returned for reinvestment
Regular cash flow to
investors
39
Investment Overview
Pyramid Ownership Structure
Members
Managing MemberFiremoon Energy, LLC
Individual Projects
Individual Projects
Individual Projects
Individual Projects
Pyramid Drilling Company, LLC$15,000,000 Private Equity
Ownership:80% Members20% Managing Member
Pyramid Ownership Structure
Company: LLC, WyomingManaging Member: LLC, Wyoming
40
Investment Overview
Sources and Uses of Funds
Sources and Uses of Funds
41
Investment Overview Proposed Company Term and Goals
Proposed Company Term and Goals
Company Name Pyramid Drilling Company, LLC
Organization Wyoming Limited Liability Corporation
Pyramid Manager Firemoon Energy, LLC
Total Transaction $60 million, $45m debt, $15M equity
Equity Raise $15 million
Percentage Offered 80% of Pyramid Membership Units for 100% of financing
Target first closing date March 15th, 2012
Investment Period 5 years
Liquidity Event Anticipate 3-4 years
Incentived Drilling Costs In proportion to Membership Units
Management Fee Per budget
Performance Fee 20% of all distributed profits
Target ROI to Investors over Term Targeting 25%-35% overall return
Target Investors Highly knowledgeable institutional investors
Minimum Investment $15,000,000
42
Pyramid Operations
Control will be maintained during holding period
• Pyramid Management and/or affiliated companies will play an active role in the placement of project finance and, if required, project management.
• Financial statements and construction draws will be reviewed monthly, quarterly and audited year end financial statements will be required during the life of the investment.
• Unaudited quarterly financial reports will be issued to all members monthly
• Audited annual financial reports will be issued to all members at year end closing
Reporting to Investers
• • • • •
Mitigating Risk
43
Investment Overview
Investment Returns
44
Investment Overview
Investment Timing
45
Investment Overview
Exit Strategy
46
• The Right Play
• The Right Market
• The Right Rigs
• The Right Team
• The Right Investment
The Time is NOW…
• The Right Play
• The Right Market
• The Right Rigs
• The Right Team
• The Right Investment
The Time is NOW…
Pyramid Drilling, LLC Bruce Woodry,
Investment Overview
Summary