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Working through the timeline to first gas in 2025

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Empire Energy Group Limited (ASX:EEG)

Issue date: 24 Apr

Empire Energy Group Limited (ASX:EEG) is an oil and gas producer /developer, with onshore Northern Territory (NT) gas exploration and development assets. EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin. Following the recent announcement of the divestment of its US assets for up to $9.1m, EEG has successfully completed a further capital raising through a placement of shares and sale of royalty interests to generate some $46.8m. Although the company has yet to deliver a formal final investment decision (FID) for its proposed Carpentaria Pilot Project, we interpret the recent raisings as effectively being the equity component of the project financing, enabling the in-ground works underpinning first gas in 1H’25. The company has indicated it is hopeful of receiving all requisite regulatory approvals and finalising gas sales and financing over the next few months – the end game remains tantalisingly close. Test results from other operators support a growing confidence in the Beetaloo commercial case and gas production at any scale has beneficial look-through impacts for all Beetaloo ventures…‘a rising tide lifts all boats’. Quite simply, more gas supply at scale is required for domestic requirements; growing Gladstone LNG ullage; and as a potential supply source for Darwin’s LNG export opportunities. We continue to view EEG as the low-cost, strongly-leveraged exposure in the play, with a significant early-mover advantage. The company looks covered from an equity capital perspective to first gas, pending regulatory approvals and debt financing.

Business model

Empire Energy Group is an oil and gas development and production company, now funded for in-grounds works ahead of an anticipated project sanction on its Carpentaria Pilot Project in the world-class McArthur-Beetaloo basins, in the next few months. Prevailing and new contract pricing highlights the apparent disconnect between a demand constrained gas market and share prices. There is a material commercial prize to be won by defining and progressing a clear timeline to production and we believe Empire should be considered as being in a pre-development phase with a material first-mover advantage. With asset divestment and equity raisings completed, the company appears well funded to maintain its accelerated path to first gas. Beneficially, Empire holds its licences at 100% providing the ability to control project timing and provide financing options through partnering.

In ground works now fully funded

Cleaning up the portfolio and balance sheet; and securing equity financing are important precursors to delivering a project sanction in the next few months. In a sector where progressing gas discoveries to production has been somewhat glacial, we see EEG as the most advanced of the Beetaloo plays. EEG commenced drilling and evaluation activity from late 2020, drilling four wells in its Carpentaria area, whilst trialling multiple frack designs and styles, delivering proof of technical concept and building significant 2C volumes, materially de-risking the play. Complimentary works have delivered varying degrees of success but all wells in the play have delivered gas to surface, adding to the pool of technical and operational knowledge - the look-through results continue to provide additional derisking benchmarks.The path to scale and growth begins with the first petajoule (PJ) and cashflow can be a game changer – importantly EEG is now in this zone.