West Erregulla Field
• Independent certification by RISC Advisory, based on a single well (WE-2), confirms West Erregulla 2C Contingent Resources of 513 Bscf gross and 2U Prospective Resources of 102 Bscf gross with significant upside potential
• Appraisal Plan, Work Plan and Budget for EP469 agreed
• EP469 Joint Venture has secured the Ensign 970 drilling rig for WE-3 and WE-4 exploration/appraisal wells (and potentially the contingent WE-5 well); regulatory approvals are well advanced
• Warrego’s estimated geological probability of success for the WE-3 well is 65%
• Drilling results from the WE-3 and WE-4 (and potentially the contingent WE-5) wells will provide valuable sub-surface data for future resource estimates
• Strong and growing interest in Warrego’s West Erregulla gas from potential gas buyers as major offshore LNG projects are confirmed as delayed; gas processing options are being progressed Spain
• Spanish State of Emergency lifted 21 June 2020 allowing formal Government business including approvals to recommence
• The transfer of the El Romeral Gas to Power Project to Tarba (El Romeral is 50.01% owned by Warrego) now awaiting approval
• Tesorillo drilling approval process expected to restart in 2H 2020
Corporate & Financial
• Two-tranche placement in May 2020 raises $15 million
• Warrego included in the ASX All Ordinaries index from 22 June 2020
• Relocation of Australian HQ from Sydney to Perth nearing completion
• Consolidated cash at 30 June 2020 was $15,262,000
EP469 (50%) West Erregulla Gas Fields
An independent, third-party audit and evaluation of the West Erregulla gas field was completed on 18 May 2020 by Perth-based RISC Advisory Pty Ltd (“RISC”). The RISC audit and evaluation of West Erregulla was commissioned by Warrego to provide certainty to potential gas buyers and optimise term and price outcomes in negotiations for gas processing and sales.
All certification was done in accordance with the Society of Petroleum Engineers’ internationally recognised Petroleum Resources Management System (PRMS 2018), Warrego also subdivided the West Erregulla field into a Central Area and a Northern Area as per PRMS 2018 guidelines. Seismic attributes were not used to assess the extent of the field.
The RISC review of the West Erregulla gas field confirmed Central Area 2C Contingent Resources of 513 Bscf gross from 1 well (WE-2) and additional upside Central Area potential in a 3C estimate of 966 Bscf gross. A further 102 Bscf gross 2U Prospective Resources in the Northern Area could become a contingent resource in the event of a successful WE-3 well. Full details are provided in Warrego’s announcement to the ASX on 18 May 2020.
The review by RISC confirms that West Erregulla is a significant gas discovery with low risk exploration upside. The Kingia is classified as a high quality, conventional gas reservoir. Additional data and further testing of the High Cliff, Dongara and Wagina reservoirs will be undertaken in the planned WE-3 and WE-4 wells to allow for a more definitive classification to be determined. Positive results may allow for higher recovery factors to be applied to these reservoirs in future.
Imminent West Erregulla Field Appraisal
The Joint Venture has approved an exploration/appraisal plan which provides for the drilling of WE3, located in the northern area of the West Erregulla gas field, in the second half of 2020 (subject to permitting), followed by the drilling of WE-4 as soon as permitting is completed. A decision on whether to drill the contingent WE-5 well will be made by the end of November 2020. The EP469 joint venture has secured the Ensign 970 drilling rig for this exploration/appraisal campaign.
The impact of Western Australia’s COVID-19 quarantine measures may present challenges and cause delays to the drilling campaign, although there is no indication of that happening at this time. Warrego is monitoring the situation closely.
RISC concurs with the Company’s estimated geological probability of success for the WE-3 well of 65%. Material cost savings are expected for the WE-3 and WE-4 drilling campaign compared to the WE-2 single well drilling costs.
During the quarter, Warrego progressed gas marketing negotiations with a shortlist of potential Western Australia domestic gas buyers. These negotiations have advanced significantly and were bolstered by the independent certification of the West Erregulla gas resource in the middle of the quarter. Interest in contracting with Warrego for long term West Erregulla gas sales is growing as the confirmed delay to other prospective domestic gas supply sources associated with offshore LNG projects becomes more of a concern to the local market.
Warrego has been progressing a range of gas processing options in parallel to its gas marketing activity during the quarter, and is currently reviewing firm proposals from third party gas processing providers. Ultimately, gas processing decisions will be market driven and will therefore be determined by the scale and timing of the gas sale agreements currently under negotiation.
Production Licence and Permit Renewal
Throughout the quarter, work in preparation for conversion of EP469 to a Production Licence (PL) was progressed, the West Erregulla Kingia-High Cliff having been declared a gas discovery by the regulator in February 2020, a key precondition to the Production Licence application process.
On 23 June 2020 the EP469 exploration permit was renewed by the Western Australian Government for a further 5 years.
STP-EPA-0127 (100%, Operator)
A 2.2 million acre permit application located onshore Coolcalalaya Perth Basin, Western Australia, targeting conventional gas reservoirs
The STP-EPA-0127 Application was acquired in March 2019 after exercising a call option which had been held by the Company since April 2016. On final grant, at 2.2million acres (8,700 km2 ) this will be the largest exploration permit in the onshore Perth Basin. It is 130 km north of the Waitsia play, and while very under-explored at this stage, is targeting similar conventional Permian sequences to Waitsia, as well as having potential deeper Devonian prospectivity.
The Native Title negotiations which are advancing are the final step before the Exploration Permit can be issued by the Department of Mines, Industry Regulation and Safety. Meetings with Native Title groups scheduled for mid-March 2020 were postponed but the improving COVID-19 situation in WA and relaxation of the quarantine regime has allowed a resumption of meetings and negotiations. Further progress is expected in the coming months provided the situation remains stable.
CADIZ REGION, SPAIN
TESORILLO PROJECT (85% ownership of Operator and permits)
Targeting conventional sandstone gas reservoirs in 94,000 acres in Southern Spain
The Tesorillo Project in the Cadiz province of Southern Spain is owned and operated by Tarba Energia S.R.L. (“Tarba”). The Tesorillo project is owned 85% by Warrego and 15% by UK AIM listed Prospex Energy plc (“Prospex”) through Tarba. The project comprises two petroleum exploration licences, the Tesorillo and Ruedalabola Permits, which cover 94,000 acres in total.
The State of Emergency in Spain resulting from the COVID-19 pandemic has meant a temporary cessation of activities in relation to Tesorillo. Tarba continues to maintain an active program of government and
stakeholder engagement. After two elections in 2019 (one inconclusive), the Sánchez II Government was
formed in January 2020.
Subject to further COVID-19 related delays, Warrego anticipates that the process for drilling approvals and
permitting should recommence in 2H 2020.
Decisions on the level of activity to be undertaken by Tarba over the remainder of the year will be made in due course in the light of the evolving COVID-19 situation and the progress of the approvals process.
SEVILLE REGION, SPAIN
EL ROMERAL PROJECT (acquiring a 50.1% indirect interest)
Integrated gas production and power station operation located in the Guadalquivir basin on 76,600 acres in southern Spain. Three producing wells, 13 prospects and multiple low-cost development opportunities.
El Romeral is an integrated gas production and power station operation located in the Guadalquivir basin in southern Spain immediately east of Seville. The purchase agreement was signed by Tarba in December 2019 with an economic date commencing July 2019. The acquisition will complete on the transfer of licences to the Tarba JV which are subject to customary regulatory approval. Warrego holds a 50.1% interest in El Romeral through Tarba.
The State of Emergency has meant that the Spanish Government has been undertaking no official business such as approving permit transfers. The State of Emergency was lifted on 21 June 2020. We are now awaiting approval of the transfer of licences however, due to the backlog of applications, the likely timing of the approval is yet to be advised.
El Romeral comprises three production licences, a 100%-owned 8.1 MW power station supplied by three producing wells, 13 prospects and multiple low-cost development opportunities with the potential to significantly increase gas production, electricity generation and revenue. The El Romeral power station has been run at a minimum level during the pandemic to protect the employees.
Drilling and development opportunities
The Tarba JV is preparing a plan to increase production rates and drill up to three new wells. Permitting work has commenced but approvals will depend on the ending of COVID-19 restrictions. El Romeral represents a low cost and rapid route to commercialisation, via tie-ins to the Projectowned power station, from the latter part of 2020 and in 2021.
A two-tranche placement to institutions and sophisticated investors was undertaken on 15 May 2020 at an offer price of $0.13 per share to raise $15 million. Tranche one for 94.9 million shares settled on 28 May 2020 raising $12.3 million. Tranche two for 20.5 million shares, which was the subject of shareholder approval via an on-line Extraordinary General Meeting on 16 July 2020 (the timing and form of meeting being dictated by the COVID-19 crisis), settled on 21 July 2020 with the $2.7 million proceeds to be included in the September Quarter.
ASX index inclusion
In the most recent S&P DJI Index rebalance (announced 12 June 2020), Warrego was included in the ASX All Ordinaries index from 22 June 2020.
Reorganisation and relocation
Warrego continues to reorganise its corporate and Australian operations to reduce costs and ensure that the development phase for West Erregulla is adequately supported and resourced. As part of that process, the transfer of Warrego’s Australian HQ from Sydney to Perth will be completed in August 2020. Ian Kirkham who has been CFO and Company Secretary based in Sydney is transitioning to a part time role as Company Secretary. The Board thanks him for his many years of service to the Company. Owain Franks, Executive Director Finance, Strategy and Delivery will take on the role of CFO at least until the full reorganisation is completed.
As reported in the last Quarterly Report, in light of the uncertain economic conditions then prevailing due to the impact of COVID-19, fees and salaries paid to Executive Directors, Senior Executives and Non-Executive Directors were reduced by 50% from 1 April. They will revert to their previous amounts from 1 August 2020.
A review of the need for an Aberdeen office is underway and it is likely that this office will be closed shortly.
Consolidated cash at 30 June 2020 was $15,262,000. Principal outflows for the quarter were $1,397,000 for West Erregulla exploration. Principal inflows were Tranche one placement proceeds of $12,300,000. Tranche Two placement proceeds of $2,700,000 settled on 21 July 2020 following shareholder approval at the 16 July 2020 online EGM and will be included in the next Quarter.