Unlocking the Potential of the Beetaloo Basin: Empire Energy's Path to Commercialization

• Empire Energy has large holdings in the Beetaloo Basin in Northern Australia, acquired through strategic acquisitions over time. The basin has huge potential for shale gas production.
• Horizontal drilling and hydraulic fracturing (fracking) technologies were key to unlocking shale gas production in the US. Australia is still early in applying these technologies to the Beetaloo Basin but results so far are promising.
• Securing approvals from government regulators and consent from indigenous land owners is critical before production can begin. Empire Energy has a good track record working with indigenous groups.
• The next steps are completing a small-scale pilot production project, estimated to cost around $100-150 million AUD. Project financing options include debt, equity raises, partnerships.
• Despite positive drilling results, share prices for companies like Empire are depressed due to macro environment and investor concerns about large capital requirements. Demonstrating commercial gas production is key.

About Empire Energy

Empire Energy is an Australian company focused on exploring and developing the large shale gas resources in the emerging Beetaloo Basin located in the Northern Territory. The company holds a substantial 100,000 acre position in the Basin, known as the Carpentaria project. Empire Energy has been active in the region since 2011, led by former CEO Bruce McCloud who recognized the shale gas potential early on. In 2021, Empire acquired additional properties on the western side of the basin from Pangaea Resources, founded by successful Australian shale gas entrepreneur Paul Fudge. Fudge is now Empire's largest shareholder with 18% of the company and sits on the board. The company is led by Managing Director Alex Underwood.

Interview with Alex Underwood, MD & CEO of Empire Energy Group Ltd.

Horizontal Drilling and Hydraulic Fracturing Unlock the Potential

The Beetaloo Basin contains enormous shale gas resources, but the low permeability of the shale rocks prevented economic development until recently. Advancements in horizontal drilling and hydraulic fracturing (fracking) technologies, proven in US shale basins, are now being applied in the Beetaloo to unlock its potential.

Empire Energy has drilled horizontal wells up to 2.5-3km long and conducted large-scale fracking operations, demonstrating these technologies can be implemented successfully. While still early days, results so far indicate economic potential. Further optimizations and learnings from US shale development are expected to drive continued improvements in productivity over time.

The company is utilizing the existing services capacity available in Australia for its current exploration and appraisal work. The NT government is also working with the industry to facilitate efficient logistics. However, significant expansion of rigs, fracking equipment and infrastructure will be needed to realize the basin's LNG-scale potential.

Strict Regulations Govern Operations

In contrast to the US, onshore operations in Australia are governed by stringent regulations around environmental management and indigenous rights. Empire Energy has successfully worked within this framework, gaining the consent of traditional land owners and having four separate environment plans approved.

For its Carpentaria project area, the company will be moving from its existing exploration agreement with traditional owners to a production agreement in 2023. Empire has a long track record of proactive indigenous engagement through frequent community meetings.

Early Production to Unlock Value

Rather than raise large amounts of capital upfront to pursue full-scale development, Empire is focused on staged progress to manage risk and fund growth. The company has demonstrated solid cost control to date, with well costs around 60-66% of its neighbors.

In 2024, Empire Energy is aiming to bring its first production online through a pilot project estimated to cost around A$100-150 million. This will involve drilling a handful of wells and constructing surface facilities. Early production is expected to generate over A$90 million in annual operating cash flow at current gas prices.

The pilot will utilize 25 TJ/day of the existing pipeline capacity, with potential to supply attractive markets. This incremental approach will allow commercialization and cash flow generation prior to larger capital investments. The company is currently evaluating funding options for the development, including existing bank debt capacity, joint ventures, and minimal equity dilution.

Conclusion

The large Beetaloo Basin resource presents enormous long-term potential. However, early-stage companies face skepticism from investors around capital requirements. Empire Energy is seeking to overcome this by demonstrating executable, staged pathways to initial production and cash flow.

Near-term catalysts for the stock revolve around securing funding for the 2024 pilot project while minimizing dilution. Success here can establish a valuation floor and enable the company to continue advancing towards its LNG-scale ambitions. Execution risks remain, but the measured strategy offers investors a lower-risk entry point relative to peers. Unlocking the Beetaloo could unlock significant upside for Empire shareholders.