• Unlocking unrecognized value for shareholders through proposed demerger and separate ASX listing of Armour’s Northern Basin Oil & Gas Business.
• McArthur Oil & Gas Ltd – a new company – is proposed to be created to hold the Northern Basin Oil & Gas Business and demerged from Armour through an in-specie share distribution to existing shareholders.
• IPO and capital raise of $60-$65 million for McArthur Oil & Gas proposed to fund acquisition of Northern Basin Oil & Gas assets from Armour and to fund forward exploration.
• Proposed total consideration of $40 million cash plus a minimum of 33.3% retained interest by Armour shareholders in McArthur Oil & Gas. The consideration received by Armour will be used to retire its outstanding debt.
• As part of the IPO and, subject to Armour shareholder approval, Armour intends to distribute on a tax-effective in-specie basis shares in McArthur Oil & Gas of a minimum of 33.3% by a return of capital to existing shareholders of Armour and will provide shareholders with a direct interest in two separately listed companies.
• Armour shareholders expected to also be provided a priority entitlement to participate in the IPO of McArthur Oil & Gas.
• McArthur Oil & Gas proposed to be the dominant exploration license holder in McArthur Basin with 13 permits covering ~89,000 km2 and major holding in South Nicholson Basin with 1 permit covering ~7,900 km2.
• McArthur Basin has proven conventional and unconventional shale gas resources with a focus on near term production development opportunities from existing conventional discoveries.
• Independently certified Prospective Resources of 34 TCF (Best Estimate) of conventional and unconventional gas and 1.2 billion barrels of oil and hydrocarbon liquids (Best Estimate).
• 193 conventional leads and prospects identified in Coxco and Reward Dolomites and Tawallah Group Sandstones with 4.3 TCF Prospective Resources (Best Estimate).
• Proposed separation will also provide greater flexibility to pursue further project opportunities.
• Further information on the McArthur Oil & Gas IPO including the record date for determining entitlements to the distribution of shares in McArthur Oil & Gas will be provided in the coming weeks.
The Directors of Armour Energy Limited are pleased to announce that the Company proposes to demerge the Northern Basin Oil & Gas Business (the “Northern Basin Business”) into a newly formed company – McArthur Oil & Gas Ltd – to be separately listed on ASX to unlock unrecognized value for shareholders.
The Northern Basin Business – Leading Operator in the McArthur Basin
Armour is the leading operator in the McArthur Basin and is the 100% owner and operator of six granted Exploration Permits and seven Exploration Permit applications (see map and table attached in Figure 1) covering approximately 89,000 km2 in the Northern Territory and the 100% owner and operator of a material position in the South Nicholson Basin in NW Queensland with one Exploration Permit application in the South Nicholson Basin covering approximately 7,900 km2.
Armour’s McArthur Basin exploration project area represents the largest and most important part of the Northern, Central and Southern McArthur Basin where the thickest and most oil and gas prone sections of the McArthur and Tawallah Groups are present.
Northern Basin Business Summary
• 100% owner and operator of 14 permits covering ~96,900 km2
• Proven conventional & unconventional gas play fairways
• 193 conventional leads/prospects identified in Coxco, Reward & Tawallah formations
• Conventional Prospective Resources P50 (Best Estimate) = 4.4 TCF (Net)
• Unconventional Prospective Resources P50 (Best Estimate) = 30 TCF (Net)
• Multiple conventional gas discoveries with 6 BCF 2C Contingent Resources
• Retention License (RL) Applications made covering conventional gas discoveries
• RLs important first step towards securing production licenses for existing gas discoveries
• Gas sale discussions underway targeting gas sales from late 2022 onwards
Conventional – Significant Resources, Proven Plays, Existing Discoveries & Multi-Target Portfolio
The Company’s Northern Basin Business in the McArthur Basin contains extensive acreage holdings covering multiple conventional and unconventional gas and liquids rich prospects and plays. The conventional oil and gas potential of the McArthur Basin was first identified through a mineral drilling programme by Amoco Minerals as part of a 9-well programme in 1979-80 searching in the Glyde region for silver-lead-zinc mineralisation within the Barney Creek Formation and a follow-up Amoco and Shell joint venture 2-well
drilling programme in 1981-82 in the Glyde Region.
Ten of the eleven wells drilled through these two programmes unequivocally intersected Barney Creek Formation sediments and a gas flow was encountered whilst drilling the Coxco Dolomite in the Glyde River-9 (GR9) well. The gas flow was subsequently ignited and flared prior to plugging and abandoning the well.
Recognizing the results from earlier mineral well drilling, from 2012 through 2015, Armour successfully pioneered oil and gas exploration across the McArthur Basin. In terms of conventional oil and gas plays, leads and prospects, the McArthur Basin contains several significant conventional hydrocarbon target reservoirs Wollorang and McDermott formations in the Tawallah Group. With a successful initial 5-well exploration programme in 2012 and 2013, Armour has established the Coxco and Reward Dolomites as a proven conventional hydrocarbon system.
With Cow Lagoon-1, Armour established the conventional gas prospectivity of the Reward Dolomite. With Glyde-1 and Glyde-ST1, Armour established the conventional gas prospectivity of the Coxco Dolomite. In addition to the initial conventional gas discoveries with the Cow Lagoon-1, Glyde-1 and Glyde-ST1 proving the conventional gas prospectivity of the Coxco and Reward Dolomites, the Company has identified 193 additional conventional leads and prospects in the McArthur Basin Coxco and Reward Dolomites and the Tawallah Group Sandstones with 4.4 TCF of Best Estimate Prospective Recoverable Gas Resources.
Armour has reported conventional gas discoveries in Cow Lagoon-1, Glyde-1, Glyde-ST1 and oil discoveries at Lamont Pass-3 within the McArthur Group. The Glyde-1 discovery well flowed 3.3 MMscfd of sales-quality gas from the Coxco Hydrothermal Dolomite of the McArthur Formation in Armour’s 100% owned and
operated EP 171.
Glyde-1 has been confirmed as a conventional gas discovery and Contingent Resources of up to 10 BCF 3C Contingent Resources have been booked. Based on these initial exploration successes, the Company has filed applications for Retention Licenses covering the Greater Glyde Gas Discovery as the first step towards progressing the Glyde Gas Discovery to commercial development.
Unconventional – Multi-TCF Resource & Multiple Shale Plays – Barney Creek, Wollogorang & McDermott
In addition to the proven conventional hydrocarbon systems established through the 5-well exploration drilling programme, the Company’s Northern Basin Business position in the McArthur Basin also contains a potential World-class unconventional shale gas petroleum system with multiple target shales in the Barney Creek and Wollogorang and McDermott Shales of the Tawallah Group.
The Barney Creek Formation is considered to be one of the most prospective unconventional Shale Gas plays in the southern McArthur Basin. The Barney Creek Formation is regionally extensive and thick (commonly over 150m) with significant TOC concentration and an oil-prone organic matter type. The Barney Creek Formation is oil mature at the surface and has been established to be wet-gas mature from 350m to 2400m and dry-gas mature where it is over 2400m deep. The Shale Gas play has a finely interbedded nature with high dolomitic and silt components providing favourable conditions for large volumes of gas to be held in pore spaces. It is expected that these rocks are likely to be well suited to large scale fracture stimulation.
Armour’s initial exploration success in the McArthur Basin has also established the Wollogorang and McDermott Shales of the Tawallah Formation as newly identified prospective shale source rock unconventional resource exploration targets. Through work commissioned by the Company, the CSIRO has confirmed the oil and gas generative potential in both the Wollogorang and McDermott Shales of the Tawallah Formation.
Through analysis of core from historical mineral wells drilled within the Company’s McArthur Basin exploration permits, the analysis has shown that the Wollogorang and McDermott Formation shales contain good source rock in the oil to wet gas generative window based on TOC measurements (up to 7.7%) and organic geochemical markers.
The Wollogorang and McDermott Shale Tawallah Formation source rocks are believed to underlie the McArthur Group and the Barney Creek Shale extending east across and through the Company’s permits extending to the Queensland border covering an area in the order of 52,000 km2.
The Company proposes to structure the demerger transaction through a new wholly-owned subsidiary – McArthur Oil & Gas Ltd – that is proposed to hold all of the assets and operations of the Northern Basin Business. It is proposed that McArthur Oil & Gas will enter into a conditional agreement to acquire from the Company the Northern Basin Business for consideration of $40 million plus a minimum 33.3% retained interest by Armour shareholder in McArthur Oil & Gas subject to amongst other matters, the completion of an IPO and ASX listing of McArthur Oil & Gas.
Through the IPO, McArthur Oil & Gas will seek to raise circa $60-$65 million proceeds to fund both the consideration for the Northern Basin Business together with McArthur Oil & Gas’s forward work programmes.
The focus will include the accelerated development of the existing conventional gas discoveries. It is expected that McArthur Oil & Gas will also continue to focus on securing one or more joint venture partners to participate in the exploration of the significant proven conventional Coxco-Cooley Dolomitic Breccias and Reward Dolomite, as well as the unconventional Barney Creek and the Tawallah Group Wollogorang Formation and McDermott Shales.
As part of the IPO and, subject to Armour shareholder approval, the Company intends to distribute on a tax-effective in-specie basis shares in McArthur Oil & Gas by way of a return of capital to existing shareholders of Armour and will provide shareholders with a direct interest in two separately listed companies. Additionally, it is expected that shareholders of Armour at the record date for the in-specie distribution will also be provided a priority entitlement to participate in the IPO raising of McArthur Oil & Gas.
Details of the proposed IPO including the record date for determining entitlements to the distribution of shares in McArthur Oil & Gas and the nature and extent of the priority entitlement in the IPO raising will be provided to Armour shareholders in due course.
Following the completion of the in-specie distribution and the IPO, the Company expects that Armour shareholders at the record date for the in-specie share distribution will hold a minimum of 33.3% of McArthur Oil & Gas with the potential to hold a greater percentage depending upon participation in the priority entitlement in the IPO of McArthur Oil & Gas.
Following the completion of the demerger, the Company will focus on reinvigorated exploration in both the Surat and Cooper Basin Business Units and continued production enhancement within the Surat. If the demerger and IPO are ultimately successful, the Company intends to use the consideration received from McArthur Oil & Gas for the Northern Basin business to retire a proportion of /some or all of its outstanding debt. Successful completion of the proposed demerger transaction is expected to result in the Company strengthening its balance sheet and both McArthur Oil & Gas and the Company being well-funded to progress their respective exploration, development and production programmes. The proposed separation will also provide greater flexibility to pursue further project opportunities for both entities.
In the coming weeks, the Company intends to work with its financial and legal advisors and engage independent financial and technical experts to assist in the proposed demerger and the execution of the IPO of McArthur Oil & Gas. The proposed demerger will be subject to the successful completion of the IPO
of McArthur Oil & Gas as well as a number of other standard conditions for a transaction of this nature, including all necessary shareholder approvals, all ASX and other regulatory approvals as required, any required consents or approvals from the Company’s financiers and receipt of any necessary or desirable tax rulings from the ATO regarding the tax implications of a distribution in specie for Armour shareholders.
The Company is currently targeting completion of the proposed demerger and IPO by the end of September Quarter 2021. Shareholders will be provided with detailed information as regards the proposed demerger and IPO in due course and the Company will provide further information and updates as and when they become available.
Unlocking Value for Shareholders
The Company believes that the current value of the Northern Basin Business is unrecognized within Armour’s current market capitalisation, and that the current focus on the significant resource potential of the Beetaloo and McArthur Basins clearly demonstrates this. The table below sets out a peer comparison which highlights the dominance of the Company’s position that has been essentially operationally suspended during the inquiries into Hydraulic Fracturing and moratoriums placed on oil and gas operations and hydraulic fracturing activities in the Northern Territory from 2014 through mid-2019.
This peer comparison highlights the Company’s commanding acreage, prospective resource and diversity of both conventional and unconventional plays. As highlighted above, the Company uniquely holds the only proven conventional play fairway along the Batten Trough and the Emu Fault Zone which sits entirely within the Company’s acreage.
Peer company resource, acreage and valuation comparison indicates that McArthur Oil & Gas’s position will compare favourably to the other pure-play McArthur/Beetaloo Basin focussed companies. This peer comparison demonstrates the value potential that can be unlocked through the proposed demerger and the potential upside for McArthur Oil & Gas through becoming an active McArthur/Beetaloo Basin pureplay focussed company actively pursuing further exploration and commercialisation of existing gas discoveries.
The graph below demonstrates the Company’s position in relation to prospective resources, market capital and acreage compared to other pure play Northern Territory McArthur and Beetaloo Basin peers.
Early gas commercialisation potential
The petroleum exploration tenements that comprise the Northern Basin Business are well positioned and are close to existing local major operating mines, gas consumers and local and regional gas pipeline infrastructure. Proximity to this pipeline infrastructure provides prospective access for future gas development within the Retention Licence Applications either North to supply Darwin, or to the East Coast Market. Alternately, the Company has also identified the potential to accelerate commercialisation via Compressed Natural Gas “virtual pipeline” solution providing
accelerated access to local and regional existing and prospective gas demand.
The Company is in preliminary discussions with third parties for the supply of gas with the intention of producing and selling Northern Basin Business gas from 2022 onwards and in discussions with potential Compressed Natural Gas service providers. The Company is also investigating initiatives to help supply energy to remote communities and assist with transitioning those communities from diesel powered generators to combined natural gas and renewable energy solutions similar to deployed in remote areas of central and north Queensland.
Armour Energy’s CEO, Brad Lingo said:
“The proposed demerger of the Northern Basin Business exploration and the development of the existing gas discoveries through McArthur Oil & Gas is a great opportunity to unlock significant value for shareholders. The Company has been well aware that the value of the Northern Basin Business has not been reflected in the Company’s share price and market capitalisation as it competes with the demands of the Company’s Surat Basin operations and the Company’s financial position. It is absolutely incumbent on the Company to unlock this value for shareholders and there are clear markers on value presented by the other pure-play McArthur/Beetaloo Basin focussed companies.”
Mr. Lingo continued “Through the proposed demerger the Company is simultaneously delivering two value creating outcomes for shareholders – unlocking the value of the Northern Basin Business and delivering this directly to shareholders dealing and removing the debt burden on the Company so it can focus on delivering the operational performance from the Surat Basin and building on the untapped exploration potential of both the Cooper and Surat Basins.