Empire Energy Group Limited: Origin/Falcon’s Amungee Success Bodes Well for EEG

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, Northern Territory, and 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 and potentially underpin capital and operational parameters. The business case will benefit from the Federal government “Strategic Plan” infrastructure funds and EEG drilling grants of up to $21m.

EEG benefits from sharing the heavy lifting
Beetaloo neighbour, Falcon Oil & Gas has released an update on the testing of its Origin JV Amungee NW 1-H well, achieving flow rates normalising to 5.2-5.8 MMscf/day/1000m of horizonal section on a multi-stage EPT across the Mid-Velkerri B shale. Amungee is the first horizontally drilled and fracked well in the Beetaloo, with a 1,100m lateral and 11 frack stages. The well was calculated to be delivering 85-95% of the recovered gas from only 4 stages across a 200m section. The company expects a producing well could have a horizontal completion up to 3kms in length. These flow rates have direct positive implications for EEG which recently announced above-expectation vertical test results across the Velkerri at its Carpentaria-1 well (refer RaaS Flash Note 28-Aug). Given the high level of confidence underpinning the regional, geological correlations across the Beetaloo from a number of vertical wells drilled to date (spanning over 300km), we believe it is not unreasonable to extrapolate results in an indicative sense, from adjacent tenements into the EEG areas. EEG expects to begin its own horizontal appraisal program later this year, with final approvals expected shortly.

Our mid-point valuation is $1.04/share ($622mn)
Our valuation range for EEG is $400m-$738m ($0.64-$1.19/share), with $622m or $1.04/share at the mid-point. There are further look-through results to come and the next phase of EEG drilling to provide the potential to increase 2P+2C volumes and; better define and crystallise our asset valuation