BlueRock Energy Capital II, LLC

  • The Unique Capital Partner for Small Producers

 

How does the BlueRock capital partnership work?



In simple terms, BlueRock provides the growth capital you need, and you provide us with a term overriding royalty interest until we achieve a contractual rate of return.  Once the rate of return is met, the overriding royalty interest is conveyed back to you, and BlueRock may retain a small permanent override in the project.  Our transactions range from $1 - 10 million and require existing production on the lease you want to purchase, or already own.  We can also include any existing production from an outside lease that you would like to include in the transaction.


First, we would evaluate the existing production based on 12 months of production and lease operating expense. In addition, we would like to see your own engineering and economics.  If it looks like there is sufficient revenue to move forward, then we would like to meet with your team and learn how you plan to use the proceeds and what sort of results you were expecting.

We're looking to buy a small portion of a much larger transaction.  Will you fund non-operated transactions?

Yes.  However, because you wouldn't control the pace of operations, we'd have to take that into consideration in how the transaction is structured and priced.  Transactions with predictable operations, lower lease operating expense and lower decline rates generate more available cash flow than transactions with unpredictable operations, higher costs, and higher declines. 



Are you running your numbers similar to that of a bank?

There are some significant differences in both how we calculate our advance rate and how we structure our transaction.  Banks typically lend between 45 and 60 percent of the existing PDP reserves at a PV10.  They will also give some minimal value for PDNP reserves.  We, on the other hand, will actually advance up 10 years of the undiscounted PDP cashflow. 

So how long does that take to pay back?

It depends on the use of proceeds.   The results of a sound development plan should be sufficient to pay the transaction off within 3-6 years, including Blue Rock's contractual rate of return.   It helps to think of our capital as a better alternative to permanently selling off your equity in the project. Our goal is to give the property back to you along with the upside.

What is your rate of return?

It depends on the level of risk in the project.   Most transactions are between 15 - 18%.  Upon achieving the rate of return, BlueRock will retain a small permanent override in the project typically between 1-3%.

What does that buy me?

A higher advance rate than a bank, it is non-recourse, no personal guarantees are required, and you maintain your interests, upside, and control in the project.   The level of cash flow and value you ultimately receive is far greater than if you sold down your working interest to a typical industry partner. 

What does non-recourse mean?

Non-recourse means if we elect to advance money towards your project and our projections are off, we are at risk of not achieving our rate of return.  We take the production, reserves, and price risk right along side the producer.  And, price hedging is not required.  We do not look to additional assets within your company for collateral coverage, like a bank would.

Do you file a lien against the property?

No.  We do own the temporary override until it reverts back to you.  Our override represents a financial production payment that remains in effect until we hit our rate of return.  It is defined as dedicated percentage of the net revenues generated by the project. 
Once our stated rate of return is achieved, we assign the temporary interest back to you.  There are no margin calls.  If the price of oil goes up and/ or production is higher than forecast, the transaction pays off more quickly.  If the price of oil or production is lower than forecast, it takes longer.

But since you own the override, what happens if the project never pays out?

Our non-recourse structure means that we could lose a portion of our investment.  However, we are willing to take that risk based on our analysis of the project and team quality.

What about the small permanent override?

Everything is negotiable, but keep in mind, it is proportionately reduced by your working interest and often does not burden any existing production that you bring into the project.

Do I need a third party engineering report?

No.  We would like to see your own technical evaluation of the properties as well as your plans for increasing production.   If you already have the report, we would be happy to review it as well.  Additionally, our team will analyze the project and generate our own engineering and economic projections.

How much equity must I bring to the transaction?

Although we prefer that you have equity in the project, we are not looking for a certain percentage of the transaction.  Typically, any required equity would be a function any overage to close the transaction above our advance rate.

Do you fund drilling transactions?

Yes.  We will fund development drilling.   However, we do not fund pure exploration plays.  We like projects supported by at least three producing wells with multiple upside opportunities included in the work plan. 

Do you fund startups?

Yes, however startups are sometimes difficult to fund due to overhead requirements.  Usually, we provide project financing without overhead, however we can accommodate overhead in certain cases.   The backgrounds of your principle members are part of the package that we ask you to submit. Our other packaging requirements can be seen in the “Submittal Requirements” tab of this website.

What would I need to get started?

If you are seeking capital for an acquisition, we'll need a purchase and sale agreement or letter of intent from the seller.  Make sure to include Well A. P. I. Numbers, Your working interest and net revenue interest, purchase statements by well for the past 12 months. Also include the lease operating expenses by category, including non-recurring costs. Give us some background information; describe the project, and what you plan to do with the funds. That should enable us to get started.

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