Empire Energy Group Limited: Carpentaria-1 Successfully Flows Gas to Surface
Empire Energy Group Limited
Carpentaria-1 successfully flows gas to surface
Empire Energy Group Limited (ASX:EEG) is a junior oil and gas producer and explorer with onshore Northern Territory (NT) and US oil & gas assets. EEG holds the largest acreage position (28.9m acres) in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin. After a material uplift in its 2C/2U gas/liquids resource base, with the 100% buyout of the Pangaea-EMG JV Beetaloo tenements for ~$57m (@30cps), 2C Contingent Resources now lie @ 199Bcf gas / 3.5mmbbls liquids. The NT region is fast developing as a gas-liquids rich strategic bolster for east coast Australia’s future energy needs plus Darwin’s expanding LNG export terminals, amid strong policy support from both Territory and Federal governments. The company has reported that its Carpentaria-1 well in EP187 has successfully flowed gas to surface during the clean-up operations post the completion of the fracture stimulation campaign. EEG commenced vertical fracture stimulation of four stacked shale targets within the Velkerri Formation earlier this month. Initial flow-back of fluids pumped into the C Shale yielded gas at surface in the first hours of flow-back with gas contribution steadily increasing through the initial flow-back period. This is a positive early sign for the business development case for Carpentaria-1.
Business model
Empire Energy Group (EEG) is a junior oil & gas producer/exploration company, focused on maturing its portfolio of onshore, long-life oil and gas fields. The company is the 2nd largest conventional gas producer in the US NY State and holds substantial exploration acreage (28.9m acres) in Australia’s Northern Territory, McArthur-Beetaloo basins, considered world- class. EEG will be looking to generate commercial gas flow rates to underpin reserves bookings and support an early development opportunity. Success could see first cash flow within 24-36 months (RaaS estimate), assisted by liquids “credits”, assuming existing pipeline infrastructure links & upgrades are delivered in parallel; supported by generous Federal government “Basin Strategic Plan” funding.
A gas flare so early is a positive sign
EEG commenced its vertical fracture stimulation programme in early June across four “stacked” shale zones in the Velkerri Formation. Initial flow-back of fluids pumped into the C Shale resulted in gas to surface evidenced by a gas flare. The company noted that the gas rate has steadily increased through the initial flow-back period. EEG will now complete the well with a production string in preparation for further analysis and extended flow rate testing. These results will provide direct input into defining the commercial model noting Carpentaria-1 is a vertical well with limited frac zones. Importantly, delivering a gas flare so early in the initial fluid recovery phase is a positive sign for the potential success of the programme.
Valuation is $0.98/share or $608m
Our valuation range for EEG is $385m to $728m or $0.62-$1.17/share with $608m or $0.98/share being the mid-point. With several event drivers emerging over the next 6-12 months, there is the potential for further uplifts to the valuation.
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