COLORADO SPRINGS, Colo.—A small Colorado Springs oil company says it has uncovered reserves valued at $132 million in western Kansas using a relatively new type of underground imaging technology.
American Energy Resources Corp. wants to use the technology in an ambitious plan to expand its production by nearly 25 times.
The firm is trying to raise up to $100 million from hedge funds and institutional investors to expand its modest drilling program and become a mid-size player in the nation’s energy industry.
The money would be used to drill 50 wells a year for three years. Those wells would boost the company’s current oil production from about 12,500 barrels a month to 10,000 barrels a day, or 300,000 barrels a month, said Don Allen, American Energy’s president and founder.
“The two oil fields we have discovered (in Kansas) are the most successful in the company’s history. Now that we have been in business for eight years and have a good track record, we want to turn ourselves from a small independent producer into a substantial oil company,” Allen said. “Our goal is to take oil on our soil and create American jobs and fuel American refineries. This would create a lot of jobs and oil in Kansas.”
The company began using three-dimensional seismic mapping, which uses sound waves to produce an image of underground geology, in early 2007 in western Kansas to help better identify oil reserves. American Energy drilled its first well there late that year and three of the six drilled so far are producing more than 180 barrels a day. American Energy got its start drilling in eastern Colorado and southwestern Nebraska using more traditional exploration methods and where such mapping techniques aren’t effective.
Allen and his company have hit a few speed bumps along the way. The company was sued in August 2008 as a result of a two-year investigation by the Securities and Exchange Commission. The SEC alleged Allen and American Energy defrauded investors by using their money for undisclosed purposes, including Allen’s personal expenses, as well as misrepresenting or failing to disclose important information about the company’s track record and profitability.
Allen owns American Energy and a sister company, H&M Petroleum Corp. American Energy has raised nearly $30 million since 2002 by selling interests in its oil and natural gas wells. The SEC also alleged in its suit that Allen and American Energy violated federal securities laws by failing to register the interests with the agency as securities and selling them through investment brokers who were not registered with the agency.
American Energy and Allen settled the suit less than a week after it was filed without admitting or denying the allegations and agreeing to pay back $510,000 to investors by June 2010 and not violate federal securities laws again. Both Allen and Douglas Peterson, the company’s sales manager from 2005 to 2007, also were banned by the SEC from working in the securities industry—at least five years for Allen and one year for Peterson.
Securities regulators in Pennsylvania and Wisconsin also ordered American Energy in 2005 to stop selling interests in wells to investors in both states because the company failed to register the interests as securities in either state.
Allen said the company had failed to “dot every i and cross every t. I told them that if I made a mistake, I was willing to pay a fine. Our investors are happy with the returns they have earned with us, and we haven’t been sued by any of them.”
American, which employs seven people at its headquarters in Colorado Springs, operates about 35 wells and owns mineral rights on about 47,000 acres in eastern Colorado, western Kansas and southwestern Nebraska and sells its oil to refineries in Denver, Cheyenne, Wyo., and Coffeyville, Kan. The company previously owned wells and mineral rights in Texas, but sold them to focus on opportunities closer to home, Allen said.
John Verhesen, a western Canadian investor in American Energy’s wells, called his investment worthwhile and said Allen “has done what he said he was going to do, and that is what is important. He drilled the wells he said he would and if he hit something, he has paid his investors.”
Bob Hubbard, a Springs resident who was an early investor in the company, said returns on the company’s most recent wells have been “very good” and called Allen “a producer; he is an oilman first, not just a salesman.”
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