Empire Energy Group Limited: Field, Flows and Flares – Horizontal Drilling Good-To-Go

Business model
Empire Energy Group (EEG) is a junior oil and gas producer/exploration company, focused on maturing its portfolio of onshore, long-life oil and gas fields. The company holds substantial exploration acreage (28.9m 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. EEG’s business case will also benefit from up to $19.3mn in funding under the federal government’s Beetaloo Strategic Basin Plan to develop infrastructure and drilling programs; plus an additional $5.37mn in R&D funds.

EEG scores on multiple fronts
EEG continues to score on multiple fronts, as highlighted in its latest update, and is on track to meet our expectations. 1) Carpentaria-1 vertical Extended Production Testing restarted on 28 September, with flow rates lifting ~45% from 0.25mmcf/day prior to shut- in, to average 0.364mmcf/day over the first 10 days of recommenced gas production. 2) The NT government has approved EEG’s application to drill up to 7 horizontal wells and acquire a 2D in-fill seismic survey on EP187, with federal government funds of c.$19mn likely supporting up to 25% of the cost of 3 wells. 3) Preparation of the Carpentaria-2H well-pad has begun, c.11km north of and targeting Velkerri shales more than 200m deeper than the C-1 well. Operations should commence by month-end. The preferred horizontal target will be determined after considering the results from both vertical sections, with the ‘B’ Shale being the strongest zonal contributor to date. 4) The EP187 in-fill 2D seismic survey will begin in the first week of November and together with the specific EEG data and regional results, should underpin the re-evaluation of attributable resources before mid-2022. The expanded data set should also support the definition of a well development model as a precursor to the economic/commercial phase.

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. There are further look-through results to come and the next phase of EEG drilling and seismic is expected to provide potential to increase 2P+2C volumes, as well as better define and crystallise our asset valuation.