Empire Energy Group Limited: Excitement Growing for Beetaloo Programmes

Business model
Empire Energy Group (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 Northern Territory and is actively progressing evaluation activity to support reserve bookings and underpin early gas development 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. Downstream infrastructure and sales deals are designed to speed-up EEG’s access to markets, which appear increasingly supply-constrained.

EEG’s continues to be the leveraged play
The recent Tamboran equity raise highlights the continuing interest in the Beetaloo gas developments, including growing interest from experienced US capital, attracted by the scale and scope of the investment opportunity. We retain our view that EEG represents the strongest direct exposure to the Beetaloo, with the largest acreage to exploit; better capital cost value (cheaper wells); strong gas-liquids upside potential, and a first-mover advantage in place to leverage downstream commercial considerations. These were highlighted recently with the execution of a transmission/processing MOU with APA Group and a transmission/sales deal with NT Power and Water Corporation, providing a clear pathway to market (Empire Energy Group RaaS Flash Comment 28 October 2021 and Empire Energy Group RaaS Update 3 November 2021). The next six to seven months will see EEG exposed to a number of potentially significant re-rating events. These include fresh seismic data and completion of the Carpentaria-2 horizontal programme. Read- throughs from flow and production testing results from the Santos operated Tanumbirini- 2H and 3H wells may also support the share price. The success case could underpin a material increase in 2C resources by mid-2022 and define the field development model. The company is well financed to complete its work programmes, with some $30mn in cash as at October end.

Our mid-point valuation is $1.04/share ($622mn)
Our valuation range for EEG is $400-$738mn ($0.64-$1.19/share), with $622mn or $1.04/share at the mid-point. Further look-through results from regional works are to come by end-2021, while EEG’s next phase of drilling and seismic have the potential to materially increase 2P+2C volumes and better define recovery economics to crystallise our asset valuation range.