December 2015 Quarterly Activity and Cashflow Report
- Cash position at 31 December declined to $2.8M
- Previous board offers nearly $1M in redundancies with $818K remaining unpaid
- Non-binding offer of US$2.2M (A$3.2M) received for Capitola Project
- Additional leasing at Newkirk results in additional 2P Reserves to 5MMBoe
- Experienced new directors appointed in January 2016
- Former Chairman, CEO and COO resign from board
- US production averaged 115 BOE/day - a reduction of 9% from the previous Quarter
- New board to review existing assets and strategy as priority
- Reserves and asset carrying values under review
It has been another difficult quarter (and year) for Pryme Energy. During the December Quarter the previous board decided to make the positions of the CEO, the CFO and the COO redundant.
This decision will trigger significant payments totaling nearly $1M and occurred against the backdrop of the Company having received a Section 249D Notice to remove all directors including the CEO and COO.
The former Chairman, Mr. George Lloyd, announced his resignation from Pryme's board effective 31 December 2015. Mr. Justin Pettett and Mr. Ryan Messer resigned from the board on 12 January 2016 with Mr. Lanskey remaining on the board.
The former directors have been replaced with experienced and successful energy executives with a strong track record of wealth creation. The new directors are Mr. Stephen Mitchell, Mr. Don Beard and Mr. Ray Shorrocks. Details of the new directors and their relevant experience were announced to the ASX on 13 January 2016. The new board will undertake a thorough technical and commercial assessment of all Pryme's existing assets and commercial arrangements and review its strategies to try and recover some of the value lost over previous years.
Oil sales net to Pryme for the December Quarter declined from the September Quarter sales by approximately 11%, natural gas production/sales declined 9% over the previous Quarter.
The decline in sales is mainly attributable to the Capitola Oil Project as a result of normal decline and minor issues with paraffin in the Mahaffey Bishop well. The issues have been resolved and a chemical treatment program initiated on both the Mahaffey Bishop and McCain wells to reduce the further occurrence of paraffin problems.
Due to the large redundancy payments agreed to be made by the previous board there has been, and will continue to be, a further deterioration in the Company's cash position which stood at $2.85M on 31 December 2015 with yet a further $818K in redundancies left to pay.
During the Quarter, the Company acquired additional acreage in the Newkirk Project and participated in a 3D seismic data acquisition at a total cost of $670K.
Cash receipts from oil and gas sales for the Quarter from the Capitola and Four Rivers projects totaled $600K reflecting sustained production but lower oil prices. Despite low commodity prices, the Company recorded a positive operating net cashflow for the period (excluding capital expenditure) of approximately $60K.
Capitola Oil Project - Fisher and Nolan Counties, Texas
Pryme has received a non-binding cash offer for the Capitola Project of US$2.214M (A$3.16M).
The offer is subject to several matters including due diligence, final documentation and Pryme board, regulatory and shareholder approvals. There remains significant uncertainty as to whether the non-binding offer will result in a firm offer and whether the transaction will complete, however the board will continue to work with the US offeror while consulting with shareholders and regulators.
The new board has commenced a review of the Capitola Project and has noted that it has consumed significant quantities of shareholder cash and has been a technical and commercial failure. The current carrying value of this asset is approximately A$4.5M and the new board expects this asset to be significantly impaired in the year-end accounts once appropriate assessments are undertaken by the reconstituted Audit Committee.
Pryme has previously reported reserve estimates for Capitola (first announced 13 August 2015). No doubt these reserves will be negatively impacted by significant falls in oil prices since the date of that report (1 July 2015). Should the asset not be sold, a new independent reserve report will be commissioned.
The Capitola Oil Project is located in an active region of the Eastern Shelf of the Permian Basin just north of the town of Sweetwater, Texas. The Project contains a number of shallow, "stacked" formations to depths of 7,500 feet, with established oil production history from vertical wells. The Capitola Oil Project acreage is contained within two contiguous lease blocks referred to as Sweetwater (approx. 7,000 acres) and Claytonville (approx. 2,333 acres) to the north of Sweetwater. Pryme has a 100% WI (75% NRI) in the initial four wells and units drilled in the project and a 37.5% WI in the shallow rights of the undeveloped acreage (25% WI in the deep rights).
Newkirk Project, Kay County Oklahoma (100% WI 81.25%NRI)
As at 31 December 2015, Pryme held 100% WI and 81.25% NRI in 4,049 acres located in Kay County, Oklahoma near Ponca City. During the Quarter an additional 1,729 acres were leased under favourable commercial terms with a three year primary term and two year bonus term.
Oil and gas leases held by Pryme are contiguous with an additional 4,936 acres held by Empire Energy Group (ASX:EEG). Under a joint operating agreement with Empire (as Operator) the two companies have agreed to the further development of the combined acreage (8,985 acres) on a 50/50 basis.
During the Quarter, the Operator undertook a small seismic acquisition program on a portion of the project acreage. Interpretation of the data continues. The estimated cost for Pryme's share of the geophysical review is US$125K.
On 27 November 2015, Pryme reported an updated Independent Reserve Report for the Project. The Reserves estimates are shown in the table below and are for 2P (Probable) Reserves only; 3P (Possible) Reserve and Contingent Resources have not been estimated.
These reserves will be reviewed by the new board as well as the carrying value of the asset.
The Reserves were reviewed by Keith Drennen and J.P. Dick of Pinnacle Energy Services LLC (Pinnacle), Registered Engineers in the state of Oklahoma in accordance with the Society of Petroleum Engineers, 2007 Petroleum Resources Management System.
This Project will undergo an evaluation by the board to determine whether it offers the potential to add value to the Company.
Four Rivers Project (8% - 25% WI)
The December Quarter oil sales of 1,806 barrels (20 Bbls/day net to Pryme) were higher than the previous Quarter. This is mainly attributable to the result of the recent workovers performed on several of the wells. Pryme has an interest in 1,260 acres (240 acres net to Pryme) located in LaSalle and Catahoula Parishes Louisiana and Jefferson and Wilkinson Counties in Mississippi.
To view the quarterly report, please visit:
About Indago Energy Ltd
Indago Energy Ltd (ASX:INK) (OTCMKTS:POGLY) is an Australian listed company engaged in oil and gas exploration, development and production. Indago's project portfolio includes liquid rich producing assets together with substantial oil development and exploration acreage in the United States.
The Company's Exploration and Production focus is on high growth oil and gas projects offering scalability of production, cash flows and reserves. Indago currently has several producing projects together with a significant acreage position. The Company's immediate focus is the development of its Capitola Oil Project located in an active region of the Cline Shale resource play along the Eastern Shelf of the Permian Basin, Texas. The project's core development and exploitation opportunities are shallower multiple "stacked" sandstones and limestones to depths of 7,000 feet which are effectively produced from vertically drilled wells. Indago's value driven model is executed through exploiting shallower, well defined intervals with advanced completion and stimulation technology within known produced oil fields together with exposure to the emerging Cline Shale resource play.
Indago's shares are publicly traded on the Australian Securities Exchange (ASX ticker: INK) and also as American Depositary Receipts on the OTCQX (ADR ticker: POGLY).
Indago Energy Ltd