Case Study: Alberta Drill Corp Inc. - Business Valuation and Fundraising

The Case:

Hashim and Pedro are two friends who met each other at SAIT when they enrolled into the Petroleum Engineering Diploma program three years ago. Both of them have experience in the Energy industry. Hashim had worked for an international major oil and gas company in the Middle East as a drilling engineer for several years. Pedro is a geologist and had worked for the state-owned Oil and Gas Exploration and Production Company of Venezuela.

Both of them immigrated to Calgary about four years ago and got connected into the Calgary industry through Immigrant Services Calgary. They are working part-time as contractors in the North American Shale Oil drilling industry. Hashim has extensive knowledge in drilling oil wells. He came up with an idea of a drill head technology that would collect real-time seismic data and transmit that data instantly to the experts on the site, who would then decode that data and direct the drilling trajectories accordingly. This directional drilling technology would help save both time and money. Hashim shared his idea with Pedro, who is an expert in analyzing seismic data and reservoir properties. After several hours of discussion, they decided to take this idea to the next level.

The two friends met with their lawyer and incorporated a private company, Alberta Drill Corp Ltd. The Initial share structure of the company consists of 100 shares - 50 shares for Hashim and 50 shares for Pedro. They each invested $5,000 of their own savings, this was the initial cash contribution for Alberta Drill Corp.

With the help of a $25,000 Government grant obtained by SAIT’s - ARIS research program, they conducted some proof of concept studies. The results of those studies were very encouraging. They now want to take this technology from proof of concept to commercialization. Based on their initial findings, this technology would be a good fit for tight oil formation in the Bakken area in North Dakota. They have already talked to a couple of Oil and Gas companies that are operating in that area, and agreed to test this technology in the field.

Hashim and Pedro have designed a detailed plan for a pilot project that would cost them approximately $300,000. They are now looking for third party investors (Minority shareholders)  who are interested in financing their project in return for an equity interest (or ownership) in their business. However, they have little or no business experience let alone securing funding for their business venture.

They have approached one of the business instructors at SAIT looking for advice on business valuation basics and how to raise the first $300,000.00 tranche of private capital.

Your assignment: Answer the following questions

• Based on the above Case, what are the challenges Hashim and Pedro are facing in advancing their business idea?  Be specific, examine regulatory issues concerning raising capital and corporate finance issues surrounding valuation and the protection of intellectual property. (10 Marks).
  
  
• Research different sources of financing available for private companies. Highlight the pros and cons of private financing through friend, family, and specific regulatory exemptions. Explain the Friends, Family, Business Associate, and Accredited Investor Exemptions as well as RSP eligibility criteria for Canadian Controlled Private Companies. In addition, examine subscription documents, legal/accounting contacts, and an RRSP (Registered Retirement Savings Plan) eligibility opinions. Focus much of the analysis on the risks and suitability factors of these types of investments, what are the key factors you need to be aware of as an issuer and why. With a focus on risk, What Information would you deem essential to disclose in any investor presentation. Use:  https://www.rspsmallbiz.ca/to examine the opportunity. Additional resources will be found at:  https://www.bcsc.bc.ca/
  and the:  https://www.albertasecurities.com/
  (30 ) Marks
  
  
• Assuming the initial financing and technology pilot project is successful, a second round of financing would be required of 5mm CAD at some point to build tools and move the business forward. What other organizations in Calgary and Alberta may be of assistance in supporting the business moving forward. List the organization and the services which may be helpful and why. (10 marks)
  
  
• Reflect on what you have personally learned from this case in terms of entrepreneurism and finance in 250-word. (10 Marks