Saddle Ranch Media, Inc.

What they do

Since a fire at the Well Draw Gas Plant in June 2002, the company has been essentially insolvent with minimal operations and revenues. The company holds a 68% membership interest in NorthCut Refining, LLC, which is rebuilding the Well Draw facility into a 5,000 barrel per day crude oil topping plant. Through a Management Services Agreement, the company provides management, supervisory, and other general services to NorthCut and directs day-to-day operations of the plant.

Revenue drivers

• Management Services Agreement — During construction, the company received $87,000 per month for six months; effective November 1, 2008, the monthly management fee was changed to $60,000 per month.
• Operating fee — Once the plant is in operation, the company will receive a $40,000 per month operating fee.
• NorthCut distributions — Under the Amended Operating Agreement, during the Loan Period, remaining Available Cash is distributed 75% to the company, 13.65% to NorthCut Holdings, LLC, and 11.35% to PCG Midstream, LLC.

Recent performance

The company has been essentially insolvent since a June 2002 fire at the Well Draw Gas Plant, with minimal operations and revenues. NorthCut has recently undergone production testing of the Well Draw Plant at approximately two-thirds of rated capacity, producing diesel and gasoline (naphtha) that meet required specifications and now has product in on-site storage. The 10-Q filed December 18, 2008, does not mention any revenue figures for the quarter.

Strategy

The company is focused on rebuilding the Well Draw Gas Plant into a 5,000 barrel per day crude oil topping plant through NorthCut Refining, LLC. It has arranged additional financing, including $1.2 million in April 2008 and $3.5 million in October 2008 from parties related to the Funding Group. The company negotiated rights to purchase additional membership interests in NorthCut, which could increase its stake to 95%. It also amended the Management Services Agreement to change the monthly management fee to $60,000 per month effective November 1, 2008.

Risks

• Insolvency and minimal operations — The company has been essentially insolvent since a fire at the Well Draw Gas Plant in June 2002, with minimal operations and revenues.
• High-interest construction loan — The $12.7 million promissory note carries a 24% annual interest rate and is secured by all assets of NorthCut and the company.
• Dependence on plant production — The company's future cash flows depend on the successful operation of the rebuilt Well Draw Plant, which is still in testing and not yet fully operational.
• Related-party financing — Additional financing of $3.5 million was borrowed from parties related to the Funding Group, and the company may need further financing.

Outlook

Management states that production testing at the Well Draw Plant has produced diesel and gasoline meeting specifications, and product is in on-site storage. The company holds rights to purchase additional NorthCut membership interests, which could increase its stake to 85% or 95% if exercised. However, the plant is not yet fully operational and continues to require financing.