Empyrean Energy PLC (LON:EME) has announced new investment plans which will see it take material stakes in significant gas projects in California.
The AIM quoted company, which last year cashed out of a minority stake in Marathon Oil’s Sugarloaf project in Texas, is now moving into ‘multi trillion cubic feet’ gas projects in the Sacramento basin.
The deal sees Empyrean taking 25% of the Dempsey prospect, targeting 1 TCF of conventional gas, where a new drill programme is pencilled in for the third quarter of this year.
It is also taking a 25% in the Dempsey Trend area of mutual interest (AMI) which contains at least three large ‘Dempsey’ style follow up prospects, as well as a 10% interest in the Alvares appraisal project which is estimated to have 2 TCF of gas.
The deal is with Australia listed Sacgasco Limited (ASX: SGC) with Empyrean paying an initial US$10,000 cash upfront, and a US$90,000 once a definitive farm-out agreement is signed.
Empyrean is to provide US$1.5mln by June 17 to support the ‘dry hole’ well costs of the upcoming Dempsey well. That payment will secure Empyrean’s 25% working interest, though the company would also be required to pay a proportional share of any remaining well costs should the Dempsey well cost more than US$3.2mln to drilling.
Similarly, at the Alvares project the company will be required to cover 13.33% of the dry hole well costs to earn a 10% stake – the proportional costs are capped should the total well cost exceed US$10mln.
The Demsey well is deemed to be the first ranking priority prior to a drilling decision being made for Alvares.
For follow-up Dempsey Trend prospects, Empyrean is required to pay 50% of dry hole costs for the first prospect to earn 25% of the first asset – plus it will pay 37.5% of well costs for the two other prospects.
Deal to unlock large conventional gas resources
"Empyrean is excited to be working alongside Sacgasco in the highly productive and prospective Sacramento Basin,” said chief executive Tom Kelly.
“We hope to help Sacgasco leverage many determined years of pre-drilling geological exploration and experience to unlock the potential that these large conventional gas prospects hold.
“The Sacramento Basin projects package adds balance to Empyrean's portfolio in a number of important ways.
“Firstly, it provides geographical balance - Empyrean has had operations in California and the USA since 2005 and is very comfortable with the framework for oil and gas exploration and development in this part of the world. Secondly, it provides an onshore focus for the company - Empyrean's Pearl River Mouth Basin Oil Project, in China and its Duyung PSC, in Indonesia are both offshore hydrocarbon exploration projects with transformational upside potential.
“Adding an onshore USA project with similar transformational upside potential helps to build a robust exploration portfolio.
“Thirdly, we are spreading the statistical risk across our portfolio by choosing excellent, potentially transformational targets in countries that have strong demand for any discovered hydrocarbons.
“And lastly, we have added a project that includes surface infrastructure with the first high impact well to be drilled shortly that can provide the Company with almost instant cash flow should the well be successful.”
Kelly added: “The next three months will be very exciting for our Company with potentially transformational drilling and 3D seismic on all three of Empyrean's new projects."
Growing and diversifying Empyrean’s portfolio
The Californian deal is the latest new opportunity to be added to the Empyrean portfolio, following a recent move to pick up two stakes in offshore Asian oil and gas assets.
Empyrean told investors that it has been working to secure a range of strategic opportunities that allow ‘significant optionality’ with minimal up front commitment.
As part of that process it highlighted that it is considering an opportunity to pick up an additional 10% of the Duyung PSC in Indonesia.
The company noted that each new project would require additional funding over and above its existing resources.
“No decision has been made at this time as to which project represent the best use of further funding (if any) and shareholders should note that there is no guarantee that such further funding will be available in order to allow the company to acquire the additional interest in the Duyung PSC or to participate in the projects outlined,” the company said in the statement.