Empire Energy Group Limited: Downstream MOU (NT Power and Water Corp) Lifts Sales Options
Empire Energy Group Limited
Downstream MOU (NT Power and Water Corp) lifts sales options
Empire Energy Group Limited (ASX:EEG) is a junior oil and gas producer/explorer, with onshore Northern Territory (NT) and US oil/gas assets. EEG has the largest tenement position (28.9m acres) in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin. The NT energy basins are fast developing as gas-liquids rich strategic bolsters for east coast Australia’s future energy needs, and potential supply for Darwin’s expanding LNG export terminals, amid strong policy/funding support from territory and federal governments. The company has announced on Monday that it has executed a gas sales and transportation memorandum of understanding (MOU) with the NT government-owned Power and Water Corporation, the Northern Territory’s largest provider of gas, electricity networks, water and sewerage services. The MOU facilitates negotiations for potential gas sales and transportation arrangements. The transaction follows hot on the heels of the transmission MOU signed last week with ASX-listed APA Group, owner of ~$21bn in energy assets. In our view, EEG’s business case could materially progress over the next 12 months, as more recovery findings and transmission/end-user supply offtakes take shape, including with NT Power and Water Corp for its McArthur River transmission line and gas sales, as well as supporting APA Group’s proposed Amadeus pipeline expansion and new Mt Isa pipeline into Australia’s east coast markets, to help alleviate supply-constraint concerns.
Business model
Empire Energy Group Limited (EEG), as a junior oil and gas producer/exploration company, is focused on maturing its portfolio of onshore, long-life oil and gas fields. The company holds substantial exploration acreage (28.9mn acres) in the world-class McArthur-Beetaloo basins in the NT and is actively progressing evaluation activity to support reserve bookings and underpin early gas development and sales opportunities. Success could see first cash flow within 24-36 months (RaaS estimate), assisted by LPG liquid “credits”. Look-through results from horizontal drilling in adjacent tenements will help define the development model. EEG is also benefiting from up to $19.3mn under federal Beetaloo Strategic Basin Plan funding and $5.37mn in R&D grants. EEG has also signed two downstream market access MOUs, the first with ASX-listed APA Group for transmission services, and the second, covering both transmission and gas sales, with NT Power and Water Corporation, cementing delivery opportunities into potentially supply-constrained markets.
NT Power and Water MOU delivers additional sales optionality
Just days after signing the transmission MOU with APA Group, EEG has secured a second downstream MOU, with the NT government’s Power and Water Corporation (NTPWC). The MOU includes both gas sales and transmission arrangements, delivering its NT Beetaloo energy tenements with further market access opportunities via established pipelines. NTPWC is the NT’s largest provider of gas, electricity networks, water and sewerage services, distributing power to over 244,000 people, spanning 1.3mn km2 across the NT. NTPWC also owns the 330km/16 TJ/day Daly-Waters (McArthur River) Gas Pipeline which connects into APA’s 120TJ/day Amadeus line at Daly Waters, adding commercial opportunities, as part of federal and state policy efforts to develop the Beetaloo as a core long-term strategic supply hub. EEG also highlights in its 3Q21 update that extended production testing at Carpentaria- 1 continues; Carpentaria-2H well drilling will begin in November, while in-fill 2D seismic acquisition starts within a week. All activity is targeting a re-evaluation of current resource estimates in 2022. Our interview with Managing Director Alex Underwood on these developments can be downloaded here Empire Energy Group RaaS Interview 1 Nov 2021.
Valuation is $622m, equating to $1.04/share
Our valuation range for EEG is $400-$738mn ($0.67-$1.23/share), with $622mn or $1.04/share as the mid-point. Further look-through results from regional works gather momentum, while EEG’s next phase of drilling and seismic acquisition have potential to lift 2P+2C volumes and better define recovery economics to crystallise our asset valuation range.
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