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Merger’s Millions Will Fuel Santa Maria Energy’s Oil Development

Expected infusion of $40 million will boost expansion of wells at company's lease near Orcutt, set stage for planned public stock offering

Santa Maria Energy officials hope a planned merger with a New York-based acquisition corporation will raise at least $40 million to help kick-start a long-awaited North County oil development project.

The union with Hyde Park Acquisition Corp. II is expected to be completed by the end of June, and will combine all assets under the parent company, Santa Maria Energy Corp.

Merger details were outlined in a document filed with the Securities and Exchange Commission following December’s announcement. The filing provides a first glimpse at the financials of Santa Maria Energy, which was founded as a privately held oil company with a different name in 2002.

Company officials announced merger plans just weeks after the Santa Barbara County Board of Supervisors approved the project, albeit with stricter carbon-gas emissions requirements than had been green-lighted previously. The project aims to install a total of 136 production oil wells, connecting pipelines and other oil equipment on leased private property south of Orcutt.

The 110-well expansion will take shape over the next two years, after officials obtain permits and necessary equipment, said Bob Poole, Santa Maria Energy’s public and government affairs manager.

Santa Maria Energy’s current operations are relatively small, and use a cyclic steam injection process to heat oil in a well to a temperature that produces flow. The company already extracts oil from 75 wells drilled into Monterey shale and 26 wells drilled into a diatomite layer at its Orcutt field.

In 2012, the company’s oil and natural gas revenues were $14,639, and it operated at a loss of $3,729, according to the SEC filing.

Santa Maria Energy holds 12,796 gross acres in its diatomite projects, and had interests in and operated 43 gross active producing wells in its Monterey projects as of September 2013.

The company claims to have 48 million barrels of oil in reserves, worth about $1.2 billion, although most remain to be proven.

Santa Maria Energy has identified 7,753 potential drilling locations on its properties in Orcutt, northwest Casmalia and the Santa Maria Valley.

As for the merger, the company intends to raise at least $40 million after stockholders on both sides approve the union, with the potential to raise $71 million, according to the filing. Kayne Investors, which already backs Santa Maria Energy, could chip in up to another $50 million.

Officials are estimating a capital budget of $114.3 million in 2014, subject to some minor expected adjustments.

Notably, the SEC filing repeatedly refers to a business strategy of “emphasized growth through strategic acquisitions.”

Although Santa Maria Energy officials are remaining mostly tight-lipped ahead of the official deal, the company provided Noozhawk with a slight elaboration last week.

“As part of its general business strategy, Santa Maria Energy keeps apprised of opportunities to acquire additional properties with drilling potential that meet its business parameters and goals,” the company said in a statement.

Future well-drilling locations will depend on the availability of capital, regulatory approval, oil and natural gas prices, drilling results and other factors, the SEC filing states.

In addition to its Orcutt operations — an estimated $106 million will go toward that project over the next two years — Santa Maria Energy plans to continue development at other North County project sites, which “will require significant additional capital,” according to the filing.

The soon-to-be publicly traded corporation believes $150 million of new capital is needed to fund planned capital projects.

Because merger money might only partially meet that requirement, the filing states that Santa Maria Energy has begun the process of raising up to $110 million in private equity financing.

Noozhawk staff writer Gina Potthoff can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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