Oil and gas exploration and production company, Eon NRG Limited (ASX: E2E) is focused on identifying and developing exploration assets in North America. The company intends to expand its production, oil and gas reserves as well as improve its profitability and cashflow by performing oil and gas exploration and development activities on its assets.
Eon NRG has as an asset portfolio of exploration and producing assets which include 15,750 acres of oil and gas leases in the Powder River Basin (PRB), Sheep Springs Field, Round Mountain Field, Borie Field and Silvertip Field. Besides these exploration assets, the company also has 840 acres of battery mineral exploration claims in Nevada which are located within 3 miles of the Lovelock Cobalt Mine.
Eon NRG – Investment Theme
On 2nd September 2019, the company released its half-year report for six months ending 30th June 2019.
Review of Company’s operations: During the half-year period, the company was majorly focussed on exploring PRB leases. The exploration activities were underpinned by cashflow generated by the company’s owned and operated producing fields in Wyoming and California.
The company has already received approvals for the drilling of its first PRB well (Govt Kaehne #9-29) which will target high quality, oil saturated reservoir, in a structurally high position relative to offset wells and will supplement Eon’s existing production.
Over the 2018-19 period, the Eon’s oil production from all of the fields has stayed relatively stable. In Q1 2019, the company witnessed a decline in oil and NGL production from Silvertip due to abnormally cold conditions which resulted in the field being shut in. As reported by the company, several Silvertip wells were brought back on-line in the second quarter, leading to an uptick in the oil production.
Gas production from the Silvertip Field has declined, partly due to a decision to choke back production from better wells while gas prices have been low. However, the company is expecting gas production to increase in winter months with the improvements in gas prices. Eon Management intends to further improve the efficiency of the field by optimising the infrastructure (gas processing plant).
At the Borie Field, the company conducted a number of other workovers which supplemented the production. Eon believes that Borie Field may have the potential for higher production from formations that are behind pipe in existing wells and work to determine the best way to access these additional reserves is ongoing.
At Sheep Springs Field and Round Mountain Field, both located in California, the company carried out work relating to the water disposal processes.
Sales analysis and financial performance Summary: For the half-year period, the company reported a total sales volume of 50,885 barrels of oil equivalent (BOE). This includes the sale of 26,911 barrels of oil, 17,460 Boe of gas and 6,514 Boe of NGL. During the half year, Eon earned a total sales revenue of US$1.92 million. Notably, the company earned a revenue of US$1.52 million from Oil sales alone.
Due to the improved cost management and field efficiency, especially relating to the Borie Field, the company’s field operating expenses in the half-year period, were 18% lower than the pcp. It is to be noted that the company’s corporate overhead in H1-2019 (US$880,000) was 20% lower than for the first six months on 2018.
At the end of the half-year period, the company had current assets of US$2.18 million, up 98% on the previous half. Further, the company had current liabilities of US$10.21 million. As at 30 June 2019, the company, the company had net assets of US$4,677,832.
Cash Flow Position: During the half year period, the company received cash of US$1.98 million as receipts from customers and paid $1.66 million to suppliers and employees. The net operating cash inflow and financial cash inflow was recorded at US$146,475 and US$427,386, respectively. The net cash used in financing activities was reported at US$1,418,300.
During the half year period, the company successfully completed a rights issue which resulted in a net cash inflow of US$1.6 million. Cash and cash equivalents at end of the half year period was noted as US$1.643 million, representing a significant uptick from US$499k reported in PCP.
Management’s cashflow forecasts show that the Group will remain in a positive net cash balance position. The forecasts are sensitive to production forecasts and oil and gas price assumptions. The company expects sale of assets and/or equity raising from the new shares issue, if required, to fulfil financial commitments.
Major Events Subsequent to the half year period:
- Extension of line of credit loan facility;
- Approval granted for drilling for Govt Kaehne #9-29 well in Powder River Basin, Crook County, Wyoming;
- Completion of well pad and access road for Govt Kaehne #9-29 well.
Extension of Line of Credit loan facility
As per company’s annual report, Bank debt at 30 June 2019 was reported as US$6.127 million. Eon recently announced that it is continuing banking partnership with ANB which has provided it with funding support for over 5 years. This loan facility was previously extended in August 2019. In an update provided on 2nd September 2019, the company announced that ANB Bank has given its approval to renew Eon’s revolving line of credit loan facility for a further 12 months period. The new expiry date of the loan facility is now 1st October 2020.
While commenting on this Bank loan extension, Eon’s Managing Director, Mr. John Whisler noted that the revolving line of credit loan facility is an effective, low-cost financing option which gives Eon flexibility to implement its growth plan.
Stock Performance: With the close of market trading on 3 August 2019, Eon’s stock was trading at a price of A$0.005 with a market capitalisation of ~A$3.85 million.
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