Strategic Resources Fund

"...the key to developing oil and gas opportunities is financing."

A serious void exists today in the capital finance markets for small and medium-sized oil and gas projects. In the past two years, six major energy capital providers (Aquila, Duke, El Paso, Enron, Mirant and Shell) have ceased to exist or have drastically reduced operations, representing a loss of over $1 billion dollars of annual investment capital which had been targeted for small and medium-sized oil and gas projects.

There are currently only one or two funds providing oil and gas "mezzanine financing" * for small projects (up to $5 million dollars), only a few for mid-size domestic projects ($5 - $25 million dollars), and almost none for international projects of any size. Those which have been active have provided only a few hundred million dollars annually in the aggregate in the last two years. Furthermore, the investment guidelines for these funds have been so narrow that a large number of projects offering very strong returns and moderate risk have had no ability to attract capital. The capital is provided by funds that internally make only limited use of available technical oil and gas expertise (engineering, geology, and geophysics). They generally limit investments to projects with significant existing production that virtually guarantees a return (though a small one) even if all development efforts are a complete failure. The overall result is moderate returns (low teens to low 20's) on projects that fit their mold, and the foregoing of opportunities that offer much higher returns and still a strong likelihood of success. Private equity funds although plentiful have been focused on large investments (typically over $20 million) and have generally been quite reluctant to back drilling projects.

Such a flight of capital could not occur at a worse time, especially for the natural gas sector. Fast-growing U.S. demand for natural gas promises strong returns for natural gas projects for at least the next two decades; and a properly structured deal will allow the financiers of such projects to significantly participate in the upside ensured by that demand. Moreover, demand from growing economies such as China, India, Japan and South Korea, will continue to support high crude oil prices, enhancing that upside even further.

The Strategic Resources Fund (SRF) is designed to fill this void. Utilizing a structure that provides the investor both a specified internal rate of return of 20% - 25%, and an additional Overriding Royalty Interest (ORRI) that will continue to deliver long term revenue streams for the life of the project, the SRF provides a unique opportunity for investors to participate in the upside potential of today's rapid growth in the energy sector with a minimum of risk.

The SRF team is currently soliciting investment capital from high net-worth individuals, institutional investors, private money managers, investment banks, and corporations. The anticipated average investment is projected to range up to $25 million dollars. EnDevCo, Inc. has identified four projects that are of interest for either current or future investment by the fund. Each of the projects offers downside risk protection in the form of proved developed reserves whose production provides immediate cash flow with the project upside defined through the use of state of the art geophysical analysis.

* The term "mezzanine" has a different meaning in oil and gas than elsewhere in the finance world; it normally applies to debt financing, usually with a first lien on oil and gas properties, together with an overriding royalty interest. Typically, it does not mean subordinated debt.

Press Releases
Release Date Headline
05-13-2004 EnDevCo Announces Formation of Strategic Resources Fund