Brenham, a 54% owned subsidiary of American International Industries, has signed a letter of intent ("LOI") to purchase an operating oil field including approximately 200 existing oil wells situated on 5,000 acres of the Permian Basin located in Midland, Texas for $6,000,000. Scott Gaille, Brenham's President, stated that "as part of the contemplated transaction, Brenham would commit to an additional $6,000,000 development program for the purpose of substantially increasing the current production of the oil field and evaluating unconventional shale potential."
The LOI provides that Brenham and the current owner would jointly operate the oil field, with Brenham receiving 70% of the working interest income until Brenham receives payback of its total investment, following which Brenham's and the seller's working interest income would be 50%-50%. Pursuant to the LOI, Brenham's technical team would have a 60 day due diligence period in order to evaluate the existing reserve reports, historical statistics, as well as the projected costs for further development operations to enhance production. The closing of this transaction is also subject to Brenham evaluating the terms of financing for this project. The closing is anticipated to occur in September 2011, provided that Brenham's management satisfactorily concludes its due diligence.
Scott Gaille further stated, "The Permian Basin oil field fits our business model of initially seeking to acquire oil development and production assets in the U.S. Brenham's business strategy is to acquire a platform of oil development and production fields in the U.S. to establish a production base and then complement those assets with a portfolio of international exploration prospects, with an initial focus on Africa."
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