Empire Energy Group Ltd: Transformational Deal Delivers Sizeable Resource Uplift

Business model
Empire Energy Group (EEG) is a junior oil & gas producer/exploration company, focused on maturing its portfolio of onshore, long-life oil & gas fields. EEG is the 2nd largest conventional gas producer in the US NY State and with the completion of the Pangaea acquisition, will hold the most exploration acreage (26.4m acres) in Australia’s Northern Territory McArthur-Beetaloo basin. Given the region’s high prospectivity, success from drilling works may generate cashflows within 24-36 months (RaaS estimate), assuming links & upgrades to pipeline infrastructure are delivered in parallel.

Terms of the deal
EEG has signed a binding sale and purchase agreement with Pangaea (NT) Pty Ltd as trustee for the Pangaea (NT) Unit Trust to acquire an 82.5% interest in EP167, EP168, EP169, EP305, and EP198. EEG will pay $5m cash, 140m shares in Empire and 8m options, with an exercise price of $0.70 and expiry three years from issue. Pangaea has undertaken to voluntarily escrow 125m shares (55m shares for 12 months, 75m for 24 months). The shares issued to Pangaea represent a ~30% interest in EEG, prior to any capital raise. EEG also has the opportunity to acquire the remaining 17.5% stake in the tenements held by Pangaea’s joint venture partner Energy and Minerals Group (EMG) of Texas, USA. If EMG joins the deal, the consideration payable by EEG would be $1.06m cash, 29.7m EEG shares and 1.7m EEG $0.70 options. The deal is contingent on approval from EEG shareholders and the NT Government, with June 30 targeted for transaction close.

Resource (and acreage) uplift positions EEG as leading play
The resource uplift from the acquisition (2C contingent resource of 170.9 BCF gas and 2.9mmbbls condensate and oil versus 41 BCF gas previously) positions EEG as one of the leading plays in the Beetaloo sub-basin, a region viewed by the Federal Government in January 2021 as having the potential “to rival the world’s biggest and best gas resources”. The acquisition delivers tenements which are further defined than EEG’s existing tenements. From 2013 to 2016 (when the moratorium against fracking began in the NT), Pangaea and EMG invested $110m in drilling five wells (1 exploration and four appraisal), drilled two stratigraphic holes , acquired 1,800 kms of 2D seismics , flew 29,000 kms of airborne surveys and analysed more than 3,500m of core samples. The tenements also deliver significant exposure to the Kyalla liquids rich gas play, which EEG had been chasing, but was not material in its Carpentaria-1 well, plus increase its exposure to the mid- Velkerri Shale plays where the company booked its initial 2C volumes in February. Importantly, EEG now holds tenements surrounding those held by Santos and Origin Energy, giving additional look-through from their drill programs.