Empire Energy Group Limited: Company-Making Beetaloo Deal Gains Shareholder Thumbs-Up

Business model
Empire Energy Group (EEG) is a junior oil and gas producer/exploration company, focused on maturing its onshore portfolio of 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 in the McArthur Basin, Beetaloo Sub-basin, considered world-class. EEG is looking to demonstrate commercial gas flow rates to underpin reserves bookings and support early development opportunities. Ongoing success may see first cash flows within 24-36 months (RaaS estimate), assisted by liquids “credits”, assuming existing pipeline infrastructure links and upgrades are delivered in parallel; supported by generous Federal government “Beetaloo Strategic Basin Plan” funding of up to $21m (3.4cps).

2Q21’s strategic successes build Beetaloo reserve momentum
Complementing the array of materially significant events during 2Q21, (Pangaea-EMG acquisition; Carpentaria-1 gas discovery; and $21m in Federal grants), EEG’s 2Q21 financial results came in-line with expectations. The net $35.38m equity injection was the most notable uplift, principally supporting the Pangaea-EMG Beetaloo tenement purchase and Beetaloo commercial validation drilling programs, while $0.53m borrowings were repaid to Macquarie, with certain covenants removed from the remaining $8.3m debt. 2Q cash boosted to ~$41.9m, with a ~$10.7m payment due out to meet the Pangaea-EMG cash terms and transaction costs, once government approvals are finalised. EEG’s 2Q operating revenues reached $1.5m, while operating losses were $1.67m and exploration costs $2.65m. EEG is now focused on: a) analysis of gas samples taken from Carpentaria-1 to determine gas/liquids composition and the proportionate contribution from each open Velkerri shale target interval (A, Intra A-B, B and C); b) securing further EP187 appraisal program approvals for a 2nd round of infill 2D seismic to further delineate the resource and horizontal drilling on up to 7 well-pad sites (including Carpentaria-1); c) completing extended vertical flow testing on Carpentaria-1; and d) gaining NT and landowner access approvals for a return to the field in the Pangaea tenements targeting Contingent Resources upgrades to fast track the path to commercialisation.

Valuation is $622m, equating to $1.04/share
Our forecasts have lifted slightly due to the AUD depreciation against the USD and this has resulted in a small increase in our valuation. The range for EEG is now $400m-$738m (previously $385m-$728m) equating to $0.64-$1.19/share, with $622m or $1.04/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.