26 Apr 2013 10:05
RED EMPEROR RESOURCES NL - Quarterly Activities and Cashflow ReportRED EMPEROR RESOURCES NL - Quarterly Activities and Cashflow Report
PR Newswire
London, April 26
* as at 31 March 2013
The Board of Red Emperor Resources NL (Red Emperor or the Company) is pleasedto provide the following commentary and Appendix 5B for the period ending 31March 2013.
Georgia Project
During the quarter Red Emperor, along with its joint venture partners, StraitOil and Gas UK Limited and Range Resources Limited (together "the Consortium")announced that it had executed a heads of agreement with the GeorgianIndustrial Group ("GIG") with respect to the joint development of the Coal BedMethane project (CBM) and conventional gas potential around the Tkibuli–ShaoriCoal Field ("Tkibuli Project") in the Republic of Georgia.
Terms of Agreement
GIG and the Consortium will jointly establish a Development Company on a 50:50basis. The Development Company will be commencing feasibility and technicalstudies, followed by an initial three or four well pilot project. The appraisal/ pilot production wells will be drilled first to clarify flow rates and otherkey parameters including optimum well construction / completion strategy, wellspacing and water treatment and disposal requirements prior to full scaledevelopment. Based on a study by Advanced Resources International ("ARI") fulldevelopment would involve 6 CBM wells per annum that are forecast to producebetween 0.3-0.5 million cubic feet per per well per day. It is anticipated thatover the first 3 years, production will build to rates that will fund furtherexpansion of the CBM project.
The initial pilot project will focus on appraising area already known to beventing methane, thus ensuring a higher chance of success. The work program isanticipated to commence in the second half of 2013 and will be predominantlydebt financed, resulting in limited capital commitments for Red Emperor movingforward. New wells will target horizons at depths between 500 and 2,000 metersand can be drilled within approximately 45 days. The fast-track program isdesigned for gas production and sales to begin within 18 months given theexisting infrastructure and logistics.
GIG have agreed a take or pay arrangement for all gas produced by theDevelopment Company at a 5% discount to a regional indexed price lesstransportation, thus removing the monetization risk so often faced withprospective CBM projects in the region. Over the last few years' regionalprices have averaged between US$8 - US$10 per Mcf.
It is the intention of the Consortium to ensure that the first well of thepilot program counts as the commitment well with respect to retaining BlockVIb. Red Emperor will be free carried for the full costs of this first well.
Tkibuli has been estimated by ARI to contain Contingent Resources (mean) ofapproximately 400 billion cubic feet ("bcf") of CBM gas. Sand horizons havealso been identified around the coal beds, which could add additional,conventional hydrocarbon resources to those estimated for CBM at Tkibuli alone.Over 400 exploration and non-hydrocarbon wells have been drilled in the Tkibuliarea, many encountering hydrocarbons and one producing gas for over 35 years.
CBM has become an increasingly important source of energy around the world andproduction is well established in the US, Australia and China. Access to marketis key to commercialisation and although major pipelines transect the country,Georgia remains almost entirely dependent on imports of foreign natural gas.CBM production from Tkibuli, therefore, could immediately be fed into the localenergy market.
Subsequent Events
In November 2012, the Joint Venture announced the completion of a 200km 2Dseismic program carried out by the Geophysical Institute of Israel ("GII").Processing of the data is complete and is currently being interpreted inTbilisi with the expectation that it will be finalised by the end of May 2013.
The purpose of this survey was to further define previously identifiedstructures on Block VIb that were highlighted as prospective from the initialsurvey in 2009 and were identified as potential drilling sites. The informationnow obtained from the recent seismic program will significantly reduce the riskassociated with any potential drilling programs in the future. To furtherassess the volume of these structures the JV is currently re-processingapproximately 10% of the lines to further refine the information forinterpretation and cover some prospective selected sites. The seismicinterpretation will also look to define the Shale Gas and Shale Oil areaswithin the two Licenses.
This new information is also being incorporated into a 3D model initiallyformed with early Seismic data from the Soviet period and supplemented by theinterpretation performed by RPS Energy from the initial 2009 vibrosis survey.It is expected that this 3D modeling will be finalised by the end of H1 2013.
CBM JV
The Company and its Joint Venture Partners, together with the GeorgianIndustrial Group (GIG), are continuing to progress plans to commence afeasibility and technical study, followed by an initial three to four wellpilot project targeting coal bed methane gas. A working model has been preparedto develop the CBM project and potential drill sites have been identified usingthe initial data from the previous 2D seismic surveys performed on the sites.The economics of this project are being prepared in association with GIG andalso in line with Government permitting requirements. It is expected thatinitial drilling will commence in Q4 2013 after the results of the studies andthe site identification process has been finalised.
Puntland Project
During the quarter Red Emperor's JV partner and operator of its PuntlandProject, Horn Petroleum Corp (TSXV: HRN), has been focused on makingpreparations for a seismic acquisition campaign in the Dharoor PSA which willinclude a regional seismic reconnaissance grid in the previously unexploredeastern portion of the basin as well as prospect specific seismic to delineatea drilling candidate in the western portion of the basin where an activepetroleum system was confirmed by the recent drilling at the Shabeel-1 andShabeel North-1 locations. The focus of the Dharoor seismic program will be todelineate new structural prospects for the upcoming drilling campaign.
Based on the encouragement provided by these two Shabeel wells, the JV hasentered into the next exploration period in both the Nugaal and Dharoor ValleyProduction Sharing Contracts ("PSCs") which carry a commitment to drill onewell on each block within an additional 3 year term. The current operationalplan would be to contract a seismic crew to acquire additional data in theDharoor Valley block and to hold discussions with the Puntland Government togain access regarding drill ready prospects in the Nugaal Valley block.
Now the Joint Venture has formally entered into next phase of the Dharoor andNugaal Valley Production Sharing Agreements ("PSAs"), it is important to notethat Red Emperor has earned its 20% interest in the two projects and remainsfully funded for the current program.
For and on behalf of the Board
Greg BandyExecutive DirectorAppendix 5B Summary - Consolidated Statement of Cashflow
Current Year to Date Quarter (12 months) $A'000 $A'000) Cash flows related to operating activities Receipts from product sales and related debtors - - Payments for: * exploration and evaluation (1,167) (8,123) * development - - * production - - * administration (206) (867) Dividends received - - Interest and other items or a similar nature 113 358received Interest and other costs of finance paid - - Income taxes paid - - Other Receipts (refunds) 3 5 Net operating Cash Flows (1,257) (8,627) Cashflows related to investing activities Payments for the purchase of: * prospects - - * equity investments - - * investments - - Proceeds from the sale of: * prospects - - * equity investments - - * investments asset acquisition escrow acc - 982 Loans to other entities - - Loans repaid by other entities - - Proceeds from underwriting - - Net investing cash flows - 982 Cash flows related to financing activities Proceeds from raisings - 2,250 Proceeds from sale of forfeited shares - - Proceeds from borrowings - - Repayment of borrowings - - Dividends paid - - Costs associated with issue of shares - (135) Net financing cash flows - 2,115 Net increase / (decrease) in cash held (1,257) (5,530)Cash at the beginning of the quarter / year to 13,771 18,044date
Exchange rate adjustments - - CASH AT THE END OF THE QUARTER 12,514 12,514For further information please visit www.redemperorresources.com or contact:
Red EmperorGreg Bandy +61 8 9225 2826Rebecca Sandford +44 20 7025 7040Fox-Davies Capital Limited (Nominated Adviser and Broker)Susan Walker / Simon Leathers +44 20 3463 5000Daniel Fox-Davies / Richard Hail +44 20 3463 5000
Tavistock CommunicationsConrad Harrington / Ed Portman +44 20 7920 3150Background
Red Emperor Resources NL (ASX: RMP | AIM: RMP) is a natural resourcesexploration company with interests in the frontier state of Puntland, Somaliaand the Republic of Georgia.
In Puntland, Red Emperor holds a 20% working interest in two licencesencompassing the highly prospective Dharoor and Nugaal valleys. These twoexploration areas cover over 36,000km2. Horn Petroleum, the operator and 60%interest holder, has completed a two well program with the JV having nowentered the next phase of the two Production Sharing Contracts across bothblocks.
In the Republic of Georgia, Red Emperor has a 20% working interest in onshoreblocks VIa and VIb, covering approximately 6,500km2. After the drilling of thefirst well in July 2011 Mukhiani -1 the JV has focused on evaluating the largeunconventional CBM potential of the area, as it is seen to be relatively lowrisk and has the potential to contribute cash flow to fund further explorationif successful.
The Contingent Resource estimate quoted above of 400bcf of CBM gas at theTkibuli project is sourced from the publically available report by AdvancedResources International's ("ARI") prepared in 2009: CMM and CBM development inthe Tkibuli-Shaori Region, Georgia. Advanced Resources International, Inc.,2009. Prepared for GIG/Saknakhshiri and U.S. Trade and Development Agency. Thereport can be viewed at:http://www.globalmethane.org/documents/toolsres_coal_overview_ch13.pdf
The Joint Venture technical consultants have not yet reviewed the details ofARI's resource estimate and the reliability of this estimate and its compliancewith the SPE reporting guidelines or other standard is uncertain. Red Emperorand its JV partners will be seeking to confirm this resource estimate, and seekto define reserves, through its appraisal program and review of historical dataduring the next 12 months.
Competent Person
Subject to the Caveat above regarding the ARI report: All of the technicalinformation, including information in relation to reserves and resources thatis contained in this document has been reviewed internally by the Company'stechnical consultant, Mr Alexander Parks. Mr Parks is a Petroleum Engineer whois a suitably qualified person with over 15 years' experience in assessinghydrocarbon reserves and has reviewed the release and consents to the inclusionof the technical information.