26/03/2015 - 10:10

Empire appoints Enerdrill for Red Gully

26/03/2015 - 10:10

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Empire Oil & Gas has kicked off a $15.7 million capital raising to fund new drilling at its flagship Red Gully North project and evaluate other projects in the Perth Basin near Gingin.

Empire appoints Enerdrill for Red Gully
Empire chairman Tony Iannello.

Empire Oil & Gas has kicked off a $15.7 million capital raising to fund new drilling at its flagship Red Gully North project and evaluate other projects in the Perth Basin near Gingin.

Empire has contracted local company Enerdrill for the drilling program, and plans to spud its Red Gully North well during the December quarter.

The deal gives Empire the option to drill up to four further wells in other areas of its owned acreage in the Perth Basin.

"If successful, the well would be tied in to the existing Red Gully production facility, meaning it has the potential to significantly increase the life and the production rates of the project," Empire said in a statement.

"In preparation for these wells, Empire will conduct a major airborne gradiometric survey across its acreage to generate leads and prospects."

To fund the drilling, the company has initiated a capital raising, which comprises a $5.5 million share placement to sophisticated and institutional investors, followed by a one-for-four rights offer to raise $10.2 million.

The placement and rights issue have been priced at 0.5 cents a share, a 28.7 per cent discount to Empire’s closing price on March 23.

This knocked the company’s share price back 14.2 per cent to 0.6 cents in today's trading.

Empire said the funds would also be used to advance early-stage exploration and discussions with third parties, with the hope of attracting farm-in partners to explore its acreage in the Perth Basin.

“The directors intend to take up all of their respective entitlements under the rights offer,” the company said.

“Empire chairman Tony Iannello will also participate as a general sub-underwriter for up to 20 million additional new shares.”

Brisbane-based ERM Power, a19.9 per cent shareholder in Empire, advised of its intention to commit to $1.8 million in the raising, with Empire to commit to sub-underwrite the rights offer up to a further $1.4 million to allow ERM to maintain its stake.

“ERM has also agreed to extend a $1.5 million credit facility it provided to Empire from March 31 to April 30, or until the rights offer is completed,” Empire said.

The rights offer has been fully underwritten by Morgans Corporate.

Empire also said it was in discussions with financiers over the possibility of further funding.

“This may include refinancing the $15 million debt to ERM, which is not repayable until August next year,” it said.

Chief executive Ken Aitken said cashflow from the Red Gully project was set to grow to about $23 million per annum from August, when the second tranche of the company’s gas sales agreement with Alcoa of Australia begins.

“This follows our success in growing the gas reserves at Red Gully and improving the performance of the processing plant significantly,” Mr Aitken said.

“The capital raising, in conjunction with the signing of the drilling contract, enables us to drill Red Gully North, which has the potential to not only increase the life of the project but may also underpin an increase in production and cashflow.”

Empire's plans to spud Red Gully follows yesterday's news that AWE had spudded its Irwin-1 exploration well, which forms part of its Senecio gas field in the Perth Basin.

In a statement, the NSW-based company said the well was at a measured depth of 115 metres and was drilling ahead in a 17.5 inch hole to a planned depth of 930 metres.

"The Irwin-1 exploration well will be drilled vertically to a planned total depth of about 4.1 kilometres and is forecast to take about seven weeks to complete," AWE said.

It said the well was designed to test the gas potential to the east of the Senecio and Waitsia gas fields.

"If the results are positive, AWE may undertake a flow test of the Irwin-1 well to better establish the commercial potential of the reservoir(s)," it said.

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