History
American Oil & Gas assembled Rocky Mountain prospects, funded a North Dakota Bakken position by selling its Wyoming acreage, and was bought by Hess in December 2010.
2003-2005: Building a Rocky Mountain portfolio
The company filed under the name American Oil & Gas Inc, of Denver; the Hess Bakken Investments I name only arrived at the very end of its story. In early 2003 it set out to build a portfolio of Rocky Mountain prospects. It paid $815,000, only $400,000 of it at closing, for half of three prospects: Bear Creek coalbed methane (gas held in coal seams) in Montana, the Krejci oil and gas leases in Wyoming, and Powder River coalbed methane acreage. The sellers, Tower Colombia Corporation and North Finn LLC, became its two defining partners.
Funding came in small steps. In September 2004 it raised $4.5 million by selling 3 million shares at $1.50 to six institutional accredited investors. Warrants from a March 2004 placement, at $1.00, expired unexercised.
In March 2005 the company announced a letter of intent to buy Tower Colombia outright. This was not an arm's-length deal: Tower's owners were the chairman and chief executive Patrick O'Brien, director Kendell Tholstrom and Bob Solomon. The merger, for 5.8 million shares, closed on 27 April 2005, and the three became the company's operating executives. In May 2005 the American Stock Exchange cleared its securities for listing. In June, the Sims 16-26 well at the Fetter project flowed gas and condensate to surface, though management would not call it commercial. In July it raised $13.5 million of convertible preferred stock paying an 8% dividend, with a conversion price of $6.00 if the well began selling gas within 60 days and $4.50 if not.
2005-2007: North Dakota and a restatement
In October 2005 the company bought a 75% interest in 33,000 acres of the North Dakota Williston Basin, the Goliath project, for $2.97 million cash and 675,000 shares. It planned to apply the horizontal Bakken drilling technique that had worked at its Big Sky wells in Montana. This became its defining asset.
It also deepened its partnerships. In January 2006 it agreed to fund 60% of North Finn's drilling and lease costs, lifting its interest in the Powder River and Big Horn Basin projects from 75% to 90%. In April 2006 it sold Big Sky, in Montana's Elm Coulee field, to Enerplus for $11.5 million. In September 2006 it paid 2.05 million shares for another 25% of the Fetter gas project, raising its interest to 92.5%. In January 2007 Red Technology Alliance agreed to fund the next three or four Fetter wells in exchange for an interest.
March 2007 brought a setback. The company took a writedown of $1-2 million, mostly because the State 4-36 well was drilled at 53 degrees instead of horizontally. After an SEC comment letter, it also restated its 2005 and early 2006 accounts to treat the Tower Colombia merger as a purchase rather than a combination of commonly controlled parties. That raised estimated oil and gas properties by about $5 million and paid-in capital by about $15 million, and lowered 2006 net income by $300,000 to $700,000.
2007-2010: Selling Wyoming to fund the Bakken
The market's confidence held. In April 2007 the company sold up to 6.0 million shares at $4.75, raising roughly $28.5 million. In July it extended the Red Technology arrangement to a deep test well at West Douglas.
In August 2008 it agreed, together with North Finn, to sell leases and minerals in Converse County, Wyoming, for up to $30 million, with the price adjusted by $722 per net acre for any delivery below 40,048 net acres. The buyer, at first kept confidential, was Chesapeake Exploration. The record for the following year is quiet until December 2009, when the company raised $31.5 million by selling 9 million shares at $3.50, well below the 2007 price, ahead of a 2010 North Dakota drilling programme.
In February 2010 it agreed to sell its remaining Wyoming Powder River acreage to Chesapeake for up to $49.4 million, of which it expected about $44 million. Together with the Douglas sale, this substantially completed its exit from Wyoming, leaving the North Dakota Bakken position as the business.
2010: Sale to Hess
On 29 July 2010 the company agreed to be bought by Hess Corporation in an all-stock deal: 0.1373 Hess shares for each share, about a 9.4% premium, with shareholders also due a cash dividend of any working capital remaining at closing. In August Hess provided a $30 million secured revolving credit line to carry the company to closing, the first borrowing facility in its filing record.
The merger proxy, mailed around 16 November, set a vote for 17 December. It valued the offer at about $7.32 a share against a $6.69 close, with about 8.6 million Hess shares to be issued, leaving American holders with about 2.6% of Hess. Holders of about 20.5% of shares, including directors, officers and North Finn, had agreed to vote in favour.
The merger closed on 17 December 2010. Shareholders received 0.1373 Hess shares each, the board and officers were replaced by Hess appointees, and the company was renamed Hess Bakken Investments I Corporation. Its exchange listing was withdrawn on 20 December and its registration terminated on 30 December 2010, ending its reporting obligations.
Written from the 26 story beats below (2003 to 30 Dec 2010), which come from the company's own announcements and filings.