Empire Energy Group Limited: To Market, to Market: EEG Secures Pipeline MOU

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. 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’s APA MOU delivers downstream market access comfort
EEG has inked a transmission and processing MOU with APA Group (ASX:APA), an ASX- listed infrastructure company. APA operates the readily-expandable 1,658km 120TJ/day Amadeus Gas Pipeline (AGP), from the Amadeus Basin near Alice Springs, north to Darwin, primarily feeding local electricity generation. The MOU delivers EEG market access comfort as its upstream business model evolves, while helping support the federal and state policy efforts to develop a gas-based manufacturing hub in Darwin and expanded LNG exports into Asia. APA is separately investigating building fresh “common-user” transmission lines to service east coast markets from the NT to Mt Isa, while enlarging the AGP to support new Beetaloo flows. The AGP already connects with Jemena’s 622km 106TJ/day, Northern Gas Pipeline (NGP) at Tennant Creek into Mt Isa, which in turn connects into APA’s extensive east coast transmission grid. The APA MOU deal terms do not preclude EEG from seeking pipeline user agreements with the 330km/16 TJ/day Daly- Waters (McArthur River) Gas Pipeline, owned by Power & Water Corporation, which connects into the Amadeus line at Daly Waters. EEG is continuing production testing at Carpentaria-1, preparing for drilling the Carpentaria-2H well and will begin an in-fill 2D seismic survey next week. All activity is targeting a re-evaluation of current resource estimates.

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, while EEG’s next phase of drilling and seismic have potential to increase 2P+2C volumes and better define recovery economics to crystallise our asset valuation range.