Oil and gas exploration and production company, Empire Energy Group Limited’s (ASX: EEG) shares went up by 7.143 percent today (i.e., 21 December 2018) after the company announced highly encouraging initial results from the Kansas Production Enhancement Program.
The company has advised that the initial results from the Kansas Production Enhancement Program have resulted in a substantial increase in oil production by achieving the current net revenue interest (NRI) production rate of 77 barrels of oil per day (BOPD).
The NRI production rate of 77 BOPD came from the production contribution from six wells. As at 30 November 2018, before the production contribution from those six wells the company was having NRI production of 331 BOPD from Kansas. At current oil prices and production rates, the payback period is estimated to be less than two months, despite the recent steep decline in oil prices. As per the company’s new credit facility with Macquarie Bank Limited, the company is entitled to do an expenditure of US$440k on the Production Enhancement Program.
The US Gas prices are currently elevated if compared to the trend over the last four years. The company is able to gain benefit from strong US gas prices as it produces at steady rates across its New York State gas production assets. Empire Energy is currently having 55 percent of its gas production for the remainder of 2018 hedged at US$4.11 per mmbtu (one million British Thermal Units) with the remainder priced off market prices. In 2019, the company’s gas hedging program will include put options which means that the minimum NYMEX Henry Hub gas price received on hedged production will be US$2.50 per mmbtu, with no cap on upside to prices.
From early October 2018 to 21 December 2018, the US WTI oil spot prices have fallen by nearly 40% to US$46 per barrel. The overall revenue of the company is getting affected due to the strength of the gas market. However, the impact of the oil price weakness on the company’s revenues is expected to be temporary, as oil hedging is going to kick in from the beginning of January 2019. More than 90 percent of the company’s forecast oil production in 2019 has been hedged at a fixed WTI crude oil price of US$66.50 per barrel which represents a premium of around US$19.50 per barrel over current market prices.
In the last six months, the share price of the company EEG decreased by 57.58 percent as on 20 December 2018. EEG’s shares traded at $0.015 with a market capitalization of circa $32.38 million as on 21 December 2018.