Empyrean Energy Plc (AIM:EME) Final results

Empyrean Energy is pleased to announce its final results for the year ended 31 March 2017.


Reporting Period:

· Implemented return of capital to shareholders of 7.9p per share following the Company’s sale of its interest in Marathon Oil operated Sugarloaf AMI, Texas

· Set about re-building the Company’s exploration portfolio and strategy

· Negotiated and awarded Block 29/11, offshore China

Post reporting period:

· Negotiated a 10% interest in the Duyung PSC, offshore Indonesia

· Secured initial funding for exploration

· Drilled the Mako South-1 well on the Mako prospect at Duyung

· Achieved better than expected reservoir quality, gas saturation, porosity, permeability and flow rates from the Mako South-1 well

· Mako South-1 well flowed at a stabilised rate of 10.9 million cubic feet of gas per day with multi Darcy permeability

· Negotiated a 25-30% working interest in the Sacramento Basin package of projects

· Sacramento Basin package includes the 1Tcf+ potential Dempsey prospect and the 2.4Tcf+ Alvares prospect plus a Dempsey Trend AMI with multiple targets

· High impact Dempsey 1-15 well spudded on 2 August 2017

Empyrean CEO Tom Kelly said,

“Empyrean has been completely transformed following successful sale of its interest in the Sugarloaf AMI and the subsequent capital return into an active explorer targeting high impact projects in energy hungry regions close to existing infrastructure. The Board of Directors has placed a heavy emphasis on adding value for shareholders. As a result, our portfolio has been strengthened and we have achieved our first exploration success at Mako in Indonesia. With excellent high impact targets remaining in Indonesia, China and the USA, it is exciting times as we build on this first success with the priority to create value for our shareholders.”

Chairman’s Statement

I am pleased to report that Empyrean, after a major restructuring of its activities in 2015/6, has successfully embarked on a new era of exploration in 2016/7. In particular it has identified and invested in two new and exciting projects in China and Indonesia along with a package of projects in the USA with significant successes achieved already to date.

The first half of this financial year was dedicated to refinancing and restructuring the Company to return value to shareholders, as promised following the sale of our interest in the Sugarloaf asset in the Eagle Ford Shale, Texas. The complex process resulted in a return of capital payment to shareholders of 7.9p for each ordinary share held. The necessary shareholder and court approvals were given in October 2016 and the capital repayment was distributed in November 2016.

While this work was proceeding the Board continued to evaluate new projects to position the Company for renewed growth and to increase shareholder value. The first tangible result of this effort was manifested by the Company acquiring a permit covering 100% of the exploration rights, under a Geophysical Survey Agreement (“GSA”) with the subsequent right to enter a Production Sharing Contract (“PSC”) on pre-negotiated terms, for Block 29/11, located in the Pearl River Mouth Basin, offshore China. Under the negotiated terms, the China National Offshore Oil Company (“CNOOC”) will have a back in right to 51% of the PSC if a commercial discovery is made following Empyrean entering a PSC.

Securing this opportunity was a major achievement for Empyrean. The permit is for an area of 1800km2 approximately 200 km SE of Hong Kong, and it contains two key exploration prospects, Jade and Topaz, which have already been identified in 2D seismic surveys. There are a number of additional leads within the Permit area and a large existing producing field immediately to the North of the area and other discoveries to the South and West.

The initial work programme, after purchasing the existing 2D seismic data from CNOOC for basin-focussed geological studies is acquisition of a 500km2 3D seismic survey over the Jade and Topaz prospects. Whilst Empyrean has 24 months under the GSA to complete the acquisition, processing and interpretation of the 3D seismic data, the acquisition of the 3D seismic survey commenced in earnest in June 2017. These steps were taken to enable sufficient time for the planning and drilling of exploration wells.

Gaz Bisht, who was instrumental in the sourcing of this new project, has extensive experience as a Petroleum Geophysicist and Geologist, as well as ten years’ experience of working closely with CNOOC, and has now been appointed to Empyrean’s Board of Directors and will continue to work with Empyrean to oversee the technical programme and the future operations.

The Company, as announced 4 April 2017, agreed to acquire from Conrad Petroleum Pte a 10% interest in West Natuna Exploration Ltd, (“WNEL”) which holds a 100% Participating Interest in the Duyung Production Sharing Contract (“Duyung PSC”) offshore Indonesia. The Duyung PSC includes the Mako Shallow Gas discovery (“Mako”) to which a Competent Person’s Report attributed 2C resources of 430Bcf recoverable gas. In addition, there are several high impact exploration leads identified via existing 2D and 3D seismic data with exploration potential of 4Tcf of gas and 120mmbbls of oil. The prospects are located close to existing pipeline infrastructure and in shallow water.

The Company participated in the drilling of the Mako South-1 well and announced on 5 July 2017 that the well had exceeded expectations with a stabilised flow rate of 10.9 million cubic feet of gas per day with no contaminants and excellent permeability in the multi Darcy range. A terrific result for the Company’s first foray back into exploration.

Lastly, the Company announced the acquisition of a package of projects in the Sacramento Basin, onshore California USA on 15 May 2017 and then increased its interest in those projects on 21 June 2017. The package includes the exciting 1Tcf potential Dempsey Prospect (EME 30%) and the 2.4Tcf potential Alvares Prospect (EME 25%). In addition, Empyrean will have a 30% interest in an area of mutual interest that has a number of prospects already identified. These projects include some existing production, but more importantly the acquisitions include surface infrastructure that allows the Company to convert any early exploration success quickly and effectively into cash flow. At the time of this report the Dempsey 1-15 well was in the process of being drilled.

The Duyung PSC, with the Mako shallow gas discovery flowing pure methane with excellent reservoir characteristics kicking off Empyrean’s aggressive exploration campaign and now underpinning value, coupled with the high impact Sacramento Basin assets with near term cash flow potential provide an excellent complement to our investment in the China Block 29/11 in the Pearl River Mouth Basin. Together these projects in Empyrean’s newly strengthened portfolio have the potential to provide significant production opportunities in the future and provide great balance. They reflect the Company’s new focus on building a strong presence in energy hungry markets with high impact exploration close to existing infrastructure. The Company is excited about its new strategy and high impact exploration portfolios and hopes that shareholders share this excitement.

Patrick Cross

Non-Executive Chairman

14 August 2017

Operational Report

Following the sale of the Company’s interest in the Sugarloaf AMI in 2016 and the subsequent return of capital to shareholders, Empyrean has set about adding high potential impact exploration projects in energy hungry regions close to existing markets and infrastructure. The first project added to Empyrean’s portfolio was Block 29/11 offshore China. Subsequently, a 10% interest in the Duyung PSC, offshore Indonesia was added via the acquisition of 10% in West Natuna Exploration Limited (that holds 100% of the Duyung PSC). Most recently, the Company acquired a 25-30% working interest in a package of assets in the Sacramento Basin, onshore California.

Empyrean retains an interest in the Riverbend Project (10 % WI) located in the Tyler and Jasper counties, onshore Texas and a 58.084% WI in the Eagle Oil Pool Development Project, located in the prolific San Joaquin Basin onshore, Southern California.

China Block 29/11 Project (100% WI)

Block 29/11 is located in the Pearl River Mouth Basin, offshore China. Empyrean is operator with 100% of the exploration right of the Permit during the exploration phase of the project. The initial contractual term is for two years with a work programme commitment of acquisition, processing and interpretation of 500km2 of 3D seismic data.

In the event of a commercial discovery, and subject to Empyrean first entering a PSC, CNOOC Limited will have a back in right to 51% of the permit.

During the first Quarter of 2017, the operational activities were squarely focused on the acquisition of a 3D seismic survey. The bidding process commenced in January and the survey optimisation process was completed by March 2017.

The survey has been designed to provide full fold 3D seismic coverage over the key exploration prospects, Jade and Topaz.

Block 29/11 (100% WI) – 3D seismic Survey planning

A formal bidding pro forma was created, and three international companies including the China Offshore Services Limited (“COSL”) were invited to submit a bid by 20 January 2017. COSL was chosen as the successful bidding party and Empyrean entered into contract negotiations for services in February.

During negotiations, the main technical efforts were orientated towards optimising the technical specifications and outline of the survey, acquisition parameters and operational efficiency. The focus was to acquire optimum survey parameters to cover the main prospects, Jade and Topaz.

During April, a Joint Technical Committee (“JTC”) and a Joint Management Committee (“JMC”) were formed with the Shenzhen branch of CNOOC Limited to manage the operations in Block 29/11. The first formal meeting was held in Shenzhen where the JMC provided formal approval to the technical and budgetary components of the 3D survey.

The survey commenced on 6 June 2017, and at the time of writing the report, more than 90% of the survey has been completed. The onboard processing of the raw data indicates that the quality of the data is excellent.

Detailed negotiations have been held with the processing department of the COSL for processing the data. The COSL team were successful in demonstrating the required comprehensive processing capabilities. As a result, the Empyrean Board has awarded the processing contract to COSL. All efforts are being aimed for delivering the final processed dataset to Empyrean in Q4 2017.

Empyrean’s technical group is also planning to complete the geological work in Q4, 2017 with particular focus on the migration pathways of oil in the basin. This work will then be incorporated with the seismic mapping for finalising the prospective resources and geological risks of the Jade and Topaz prospects.

Duyung PSC, Indonesia (10% WI)

More recently on the 4 April 2017, Empyrean announced that it had entered into a sale and purchase agreement to conditionally acquire up to a 20% shareholding in West Natuna Exploration Ltd (“WNEL”) from Conrad Petroleum Pte Ltd (“Conrad Petroleum”). Conrad Petroleum held 100% of WNEL which holds a 100% Participating Interest in the Duyung Production Sharing Contract (“Duyung PSC”) in offshore Indonesia and is the operator of the Duyung PSC. On 12 May 2017 it was confirmed that the Shareholder Agreement had been finalised and Empyrean had paid the agreed sum of $US2,000,000 to acquire a 10% holding in WNEL. Empyrean subsequently decided not to increase its interest from 10% to 20% and currently holds a 10% interest in WNEL.

The Duyung PSC covers an offshore permit of approximately 1,100km2 in the prolific West Natuna Basin. Apart from the existence of numerous prospects and leads, the block contains the Mako shallow gas discovery. According to a recent Competent Person’s Report (LEAP Energy 2017), the field has the potential to contain 2C and 3C Resources of 433 Bcf and 646 Bcf of recoverable gas respectively over an area of at least 340 km2.

The appraisal well Mako South-1 was spudded on 16 June 2017 using a jackup rig located in water depths of 308 ft. The well reached a TD of 1,707 ft on 22 June 2017.

On 5 July 2017, Empyrean was able to announce that the well had flowed methane gas at a stabilised rate of 10.9 million cubic feet per day through a 2 inch choke. The test results demonstrated that the sandstone reservoir is laterally contiguous, and has exceptional permeabilities in the multi Darcy range. Furthermore, there was no pressure depletion during the extended production period. The methane gas observed was close to pure with no contaminants. A sample of core was recovered successfully and is currently undergoing further analysis to assist with the overall assessment of results.

The gas saturation, permeability, overall reservoir quality and flow rates were much better than the operator and Empyrean had expected. As a consequence, preparations are now (July 2017) being finalised to commence a 3D seismic survey in Q4 2017. Its twofold purpose will be to accurately delineate the extent of the gas-filled sandstone reservoir (s) and to aid in locating the best appraisal and development drilling sites.

Multi Project Farm-in in Sacramento Basin, California (25%-30% WI)

Empyrean has made several announcements over the period 15 May-21 June 2017 concerning its recent agreement to farm-in to a package of projects in the Sacramento Basin. The agreement is with the operator Sacgasco Limited, an Australian company focused on natural gas development and production in the Sacramento Basin onshore California.

The farm-in involves participation in two mature, multi Tcf prospects “Dempsey” and “Alvares”, and an Area of Mutual Interest named the “Dempsey Trend AMI”.

Empyrean will earn a 30% interest in the Dempsey Prospect targeting 1 Tcf of gas by paying US$2,100,000 towards the cost of drilling the Dempsey 1-15 exploration well. These drilling costs have a promoted cap of US$3,200,000 and Empyrean will pay its working interest of 30% towards any additional costs towards Dempsey 1-15, including completion costs. The Dempsey 1-15 well was spudded on 2 August 2017 and is currently drilling ahead at the time of writing this report.

A 25% WI will be earned in the Alvares Appraisal Prospect, by Empyrean paying 33.33% of the costs of the next Alvares appraisal well. The Alvares structure is interpreted by Sacgasco to hold prospective resources of over 2 Tcf of recoverable gas.

Finally, the Dempsey Trend AMI, in which Empyrean will earn a 30% interest, includes at least three large Dempsey style follow up prospects that have already been identified. Empyrean will provide technical assistance to Sacgasco to further mature prospects within the Dempsey Trend AMI and will also have an option to participate in the already identified prospects on the following basis:

· Prospect #1 : EME pays 60% of dry hole cost (i.e. to testing and setting production casing or abandonment) to earn 30% W

· Prospect #2 : EME pays 45% of dry hole cost (i.e. to testing and setting production casing or abandonment) to earn 30% WI

· Prospect #3 : EME pays 45% of dry hole cost (i.e. to testing and setting production casing or abandonment) to earn 30% WI

Riverbend Project (10%)

The Cartwright No1 re-entry well produces gas and condensate from the arenaceous Wilcox Formation.

Production commenced on 13 May 2013, and well head rates rapidly decreased to a monthly production in June 2014 of 2,687 msc.ft of gas and 83 barrels of condensate. Thereafter Cartwright No1 re-entry has been shut in intermittently. The well is now virtually suspended producing only nominal amounts of gas condensate. In the last 12 months only 1,827 msc.ft of gas has been produced with virtually 455 barrels of condensate.

In light of current market conditions, little or no work has been completed on the project in the year and no budget has been prepared for 2017/18 whilst the Company focuses on other projects. As a prudent measure, the Company has decided to fully impair the carrying value of the asset at 31 March 2017.

Eagle Oil Pool Development Project (58.084% WI)

Located in the prolific San Joaquin Basin onshore, southern California.

No appraisal operations were carried out during this period. It is anticipated that, should there be a sustained improvement in the oil price, a vertical well test of the primary objective, the Eocene Gatchell Sand, followed by a horizontal appraisal well, would be the most likely scenario.

In light of current market conditions, little or no work has been completed on the project in the year and no budget has been prepared for 2017/18 whilst the Company focuses on other projects. As a prudent measure, the Company has decided to fully impair the carrying value of the asset at 31 March 2017.


2C Contingent resources are quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable. The range of uncertainty is expressed as 1C (low), 2C (best) and 3C (high)

Full financial data can be found on the RNS here.

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