Armour Energy Limited: Kincora Works Begin...equity Raise Expanded
Armour Energy Limited
Kincora works begin...equity raise expanded
Armour Energy Limited (AJQ.ASX) is a junior energy producer and explorer with assets across northern, southern and eastern Australia. The company has been listed on the ASX since April 2012. The opportunity set for Armour through FY21 has the capacity to materially reshape the company financially by delivering cash flow growth, reducing debt and progressing a range of exploration options. Although significant exploration drilling may not occur until the end of CY21 and into 2022, the company is likely to be in a stronger position to work its assets at its own pace and to its own plan. We will be looking for delivery of the Kincora production growth plan which aims to more than double production, to 20TJd and growing over the next 18-24 months.
Business model
Armour Energy is a junior oil and gas company holding a production base with expansion options; and an extensive exploration portfolio across three Australian states, dominantly focussed on exploring for gas. The portfolio consists of exploration plays, reflecting a mix of moderate risk and early exploration stage with transformational potential. The company is looking to leverage its production growth plan at Kincora to repair its balance sheet and service a more aggressive exploration strategy, without recourse to equity markets. Financing is always a concern at the small end and the company’s high working interests provide options through partnering.
Progress at Kincora...more money in the bank
The production enhancement programmes at Kincora have commenced, which will provide data for benchmarking against the growth plan. The first three wells to be fracked should be completed and on-line by end-2020...we will know quite quickly how deliverable the growth targets and strategy will be. It is an iterative process with results from each frack process used to tweak the remaining wells. Success could see AJQ move a long way towards its target of up to 20TJd by end-FY21.
The capital raise announced on 15-June has been upscaled to $15mn (from $10mn) as evidenced of stronger market confidence and demand. AJQ will now be able to firm additional activity in the Cooper Basin and on the Newstead Gas Storage asset. The Newstead play in particular can provide annuity style cash flows and the business case for AJQ is enhanced with expansion, particularly as an adjunct for export operators...the recent Federal Government energy initiatives including expansion of the Wallumbilla hub, make Newstead a valuable and strategic asset.
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- Armour Energy Limited: Kincora Works Begin...equity Raise Expanded25 Sep 2020