Warrego Announces Activity Report for Quarter Ended December 2020

Source: www.gulfoilandgas.com 1/25/2021, Location: Not categorized

Highlights
Health, Safety and Environment
• There were no safety or environmental incidents recorded during the quarter West Erregulla Field Appraisal
• The WE-3 appraisal well, located in the northern area of the field, experienced a series of early-stage operational issues and delays which were successfully resolved.
• Whilst drilling through the upper section of the Carynginia shale, significantly over pressured gas was encountered which could have tested the design limits of the well.
• WE-3 was suspended in early January 2021 to allow time for further analysis and engineering and to procure the necessary materials and equipment to return later in the current drilling campaign and resume drilling to the target reservoirs.
• To maximise efficiencies, the drilling rig has been moved to the WE-4 location.

West Erregulla Field Development
• Warrego and JV partner Strike Energy Limited (Strike) executed a binding Heads of Agreement (HOA) in October 2020 to jointly develop the West Erregulla gas field.
• Warrego’s large scale, 155 PJ long-term gas sales agreement with Alcoa underpinned the development case and Phase 1 plant capacity was upsized to 80 TJ/d.
• AGIG confirmed as the preferred proponent to build, own and operate the processing facility and a supplemental FEED study is underway to address the revised 80 TJ/d scope.
• Field development plan agreed and WE-5 added to the current drilling program
• Gas balancing arrangements in place to align both JV partners with respect to the different volumes and commencement dates of their foundation gas sales agreements.
• The JV will continue to pursue gas sale opportunities for the remaining small volume still available in the Phase 1 development (further gas sales are not needed for Phase 1 FID).
• JV partners are currently pursuing project financing for the construction of Phase 1 on a coordinated basis and are in discussion with a number of domestic and international banks.

Corporate & Financial
• Warrego successfully completed a capital raising at A$0.21 per share, via a two-tranche placement and a SPP, that raised A$32.8 million.
• Consolidated cash at 31 December 2020 was $33,664,000. The company is funded for the WE-4 and WE-5 wells as per the joint venture agreed budget.
• At year end, Warrego’s institutional shareholding had increased to 11.5%. The stakes of the Company’s founders, Duncan MacNiven and Dennis Donald, have been diluted from 39.8% to 30.3%, substantially improving liquidity.
• Mr Jani Surjan, Perth-based Group Financial Controller, was appointed as Chief Financial Officer effective 1 December 2020.

WESTERN AUSTRALIA
EP469 (50%) West Erregulla Gas Fields
Exploration Permit located onshore North Perth Basin, Western Australia, targeting conventional gas reservoirs.

West Erregulla Field Appraisal Campaign Update
During the quarter, the Operator progressed appraisal drilling operations at WE-3. As a result of bottom hole assembly losses and fishing operations, subsequent side-tracking operations and an issue with a slip and sealing assembly, the WE-3 well experienced significant delays early in the program. Warrego’s Perth based team worked closely with the Operator to improve operational performance.

The well encountered geological formations on prognosis and consistent hydrocarbon shows were observed throughout the Dongara and upper Wagina sandstones as expected. Whilst drilling through the upper section of the Carynginia shale over pressured gas was encountered.

The unexpected presence of the Carynginia over-pressures had the potential to exceed the design limits of the well. In order to safely drill ahead to the target reservoirs, the Joint Venture considered that additional well engineering, materials procurement and equipment would be required. The Joint Venture therefore decided to temporarily suspend WE-3 and move the rig to the already prepared site at WE-4 whilst the necessary processes are completed in order to re-enter and subsequently resume drilling WE-3 during the current campaign. The joint venture has yet to decide the sequencing of drilling WE-5 and the WE-3 completion post WE-4.

The presence of gas in the Dongara, Wagina and Carynginia is a positive result and the Joint Venture continues to consider the implications of the geological data acquired at WE-3.

West Erregulla Field Development
Warrego and Strike executed a binding HoA in October 2020 to ensure both parties are aligned on the development of the West Erregulla gas field. The HoA provides an agreed pathway for the development of West Erregulla including:
• Gas processing and the necessary plant capacity for Phase 1;
• Gas balancing and gas sales arrangements to align the interests of both Joint Venture partners with respect to the difference in total contracted volumes and contract commencement dates for each Joint Venturers’ foundation gas sales agreement; and
• A Phase 1 capacity of 80 TJ/d delivered to the Dampier to Bunbury Natural Gas Pipeline (DBNGP).
• Agreement to proceed to Phase 2 development subject to market and feasibility study results.

The Australian Gas Infrastructure Group (AGIG) remains the preferred proponent to build, own and operate the facility and is expected to complete a supplementary FEED study for an 80 TJ/d plant during Q1 CY2021. During the quarter, the JV made significant progress on the agreements for the construction of the gas plant and associated gas processing agreement. Work on the requirements for JV funded infrastructure also progressed.

The Joint Venture partners plan to seek financing for the construction of the Phase 1 development on a co-ordinated basis with the expectation of generating superior financing outcomes by following this process.

The Joint Venture is now targeting FID within H1 CY2021 subject to the drilling, testing and evaluation of the WE-4 and possibly the WE-3 or WE-5 appraisal wells depending on the well sequence. The target date for first gas sales from West Erregulla is now expected in H2 CY2022. Although additional gas sales are not required to support FID, the Joint Venture continues to market the remaining gas and capacity to optimise the development.

Production Licence
Work in preparation for conversion of EP469 to a Production Licence (PL) progressed and Warrego and Strike have agreed to lodge the Production Licence application once FID is taken for the development of the field.

STP-EPA-0127 (100%, Operator)
A 2.2 million acre permit application located onshore Coolcalalaya Perth Basin, Western Australia, targeting conventional gas reservoirs Native Title negotiations progressing Discussions with Native Title groups are ongoing. Conclusion of Native Title negotiations are the final step before the Exploration Permit can be issued by DMIRS.

At 2.2 million acres (8,700 km2), this will be the largest exploration permit located onshore Western Australia. The permit area is 130 km north of Waitsia and West Erregulla and while very under-explored at this stage, is targeting similar conventional Permian sequences to those encountered at West Erregulla and Waitsia, as well as having potential deeper Devonian prospectivity.

CADIZ REGION, SPAIN
TESORILLO PROJECT (85% ownership of Operator and permits)
Targeting conventional sandstone gas reservoirs in 94,000 acres in Southern Spain. Tesorillo is estimated to contain 830 BCF gross unrisked prospective resources on a best estimate basis1

. Operations
During the quarter, Warrego’s UK team continued to work with various government agencies to progress drilling approvals and permitting. There are no financial or drilling commitments attached to the permit.

Subject to further COVID-19 related delays, Warrego anticipates that the open regulatory approvals will be obtained in the first half of 2021 and permitting can then also be approved in 2021.

Once approvals and permits are received, Warrego and its Joint Venture partner will finalise the work program. Warrego is looking at a number of strategic options to unlock shareholder value from both this highly prospective asset, which is close to excellent infrastructure and markets and El Romeral.

SEVILLE REGION, SPAIN
EL ROMERAL PROJECT (50.1% ownership of Operator2 and permits on approval of transfer)
Integrated gas production and power station operation on 76,600 acres in southern Spain. Three producing wells, 13 prospects and multiple low-cost development opportunities with the potential to significantly increase gas production, electricity generation and revenue

Acquisition update
El Romeral is an integrated gas production and power station operation located immediately east of Seville in southern Spain. El Romeral provides Warrego with a low-cost entry into Spain’s energy market and a platform to develop localised Operating expertise under the supervision of Warrego’s UK team.

During the quarter, national Government approval for transfer was received and completion of the transaction is now only subject to formal approval from the Andalucian Regional Administration which is expected to be gazetted shortly. Completion of the transaction is now anticipated to occur on 28 February 2021.

Operations
The El Romeral power station has been run at a minimum level during the pandemic in order to protect employees.

Whilst there can be no committed work program until the acquisition completes, the medium term target is to increase gas production and, in turn, electricity generation at the power plant towards its nameplate capacity via the drilling of new wells targeting already identified development locations / prospects.

Tarba will also carry out a review of the existing wells to evaluation the potential to undertake workovers to enhance recovery rates.

Reserves and Resources
On completion of the El Romeral acquisition, Warrego will recognise 2C Contingent Resources of 5 BCF gross and a Best Estimate of Unrisked Prospective Resources of 90 BCF gross3

. CORPORATE
Placements and Share Purchase Plan
On 14 October 2020, Warrego announced it would raise $32 million in order to fund the drilling of the WE-4 and WE-5 appraisal wells, 3D seismic over the remainder of EP469 and general working capital. The capital raising was conducted via a two tranche placement to institutional and sophisticated investors with a SPP offered to shareholders at the same price as the placement at A$0.21 per share. Tranche One of the placement was completed on 20 October 2020, raising a total of $26 million. Tranche 2 was completed on 1 December 2020 raising a total of $6 million. The SPP closed on 5 November 2020 raising a total of $780,000.

Warrego is funded for the WE-4 and WE-5 well costs as per the joint venture budget. During the quarter, discussions with banks continued around securing project finance for the West Erregulla project post FID.

AGM and Other Corporate Matters
The Company held its Annual General Meeting as a virtual meeting on 25 November 2020 with all resolutions passed by an overwhelming majority including the re-election of Mark Routh as a NonExecutive Director.

Mr Owain Franks stepped down as Chief Financial Officer effective from 1 December 2020 and remains a senior executive of the Company focussing on the Group’s European assets.

Mr Jani Surjan, Perth-based Group Financial Controller, was appointed as Chief Financial Officer effective 1 December 2020.

Financial
Consolidated cash at 31 December 2020 was $33,664,000. Principal inflows for the quarter were $32,857,000 from the share placement and SPP (before transaction costs), whilst principal outflows for the quarter were $7,320,000 for West Erregulla exploration.


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