Elixir Petroleum (ASX: EXR) has interests in conventional and unconventional exploration and production assets, with a geographical focus on Europe.
Elixir Petroleum: Steady post merger progress
So the merger is complete. Elixir Petroleum is now a dual listed company (Australia & UK) and can boast that it holds interests in a producing field in the Gulf of Mexico and additional interest in a second field that will shortly be tested for re-development, whilst still retaining its offshore interests in the high risk, high impact North Sea. Pre-merger Elixir was finding life tricky; as one of the first oil and gas exploration juniors to move into the North Sea at the beginning of the recent exploration boom, the company picked up a fair amount of acreage, and found itself in a position of advantage as larger players moved in, looking for drill targets. However, things changed quite rapidly in the North Sea over the following years, as the price of drilling soared due to lack of available rigs, advantaging the larger, more cash-rich oil and gas players who could still afford to drill and buffer the disappointment of dry holes. Elixir changed from a nimble company that could position itself in a prime exploration hydrocarbon basin, to an oil and exploration minnow that was struggling to appease shareholders with regular news flow, whilst attempting to farm out interests in its blocks in the hope of retaining a free carry interest on an exploration well. Not to put too fine a point on it, Elixir had the targets, but didn’t have the cash to develop them, which made it extremely difficult to maintain investors’ interest in the story.
Fortunately, Russell Langusch was acutely aware of the predicament and went on the hunt for a suitable deal that would help balance the company’s portfolio and bring in some much needed near term drilling and production potential. A deal was eventually struck with Gawler Resources, a small ASX listed company that had earned into the re-development of the High Island oil and gas project in the Gulf of Mexico. Gawler Resources was, in a sense, like Elixir. It had a 30% working interest in a near term cash flow project, but lacked the cash to fund its share of the development costs. Elixir may have come up short for splashing out on an offshore drilling platform in the North Sea, but it certainly had enough cash to fund Gawler’s smaller development. Hence a deal was struck and the two companies agreed a merger, bringing immediate cash to the table for Gawler - plus high impact acreage in the North Sea - and giving Elixir access to much needed near term developments and cash flow.
Shares in Elixir are understandably still volatile, being a small company with only a handful of assets, but we think its safe to say that the market agreed with Elixir’s logic, and supports the merger – shares in the company have established a bit of an upward trend since bottoming out at 8-9p in 2007. So the merger is complete. What next? To start with, Elixir is generating cash flow. Both the High Island A-1 and A-2 wells have been successfully completed and tied into the established infrastructure in the Gulf of Mexico. First receipts of revenues from the wells arrived in Q4 2007, and are expected to be in the region of US$0.7 million per month from cumulative gas production of 17.6 mmcf/d of gas and 297 barrels/day of condensate. A third well will be drilled in 2008 to boost production yet again, with a possible fourth well in 2009 – Argonaut Securities is pencilling gross production figures for 2009 of over 11 billion cubic feet equivalent (bcfe) per annum; up from 6 bcfe in 2008.
Elixir has also opted to earn into another field re-development in the Gulf of Mexico, the Pompano gas field. Elixir has a 25% working interest in Pompano, which has probable reserves of 40 billion cubic feet (bcf) of gas, and proved undeveloped reserves of 24 bcf, with total exploration potential of 104 bcf. The first of six wells is expected to get underway shortly and operator, AnaTexas Offshore, announced last week that it had contracted a jack-up rig to drill the first well to a depth of almost 8,000 feet at the field’s ‘B’ satellite platform. The well is expected to take approximately 30 days to complete and will test seven sands located between 3,800 feet and 7,900 feet. Pompano, like High Island, benefits from good infrastructure so re-development costs are modest and any discoveries can be quickly connected to the pipeline.
Meanwhile, in the North Sea, the focus is still firmly on the Leopard prospect, which has prospective gross reserves of 350 million barrels. German utility, RWE, opted to take a 30% working interest in the prospect in return for paying more than 50% of the costs. Elixir is actively promoting the prospect to other interested parties, with the ultimate goal being to farm out another chunk of the prospect whilst retaining a free carried interest through the first exploration well. The company is hopeful of completing the farm-out and drilling Leopard in 2008.
The merger has also seen a bit of shake up at the top with Managing Director, Russell Langusch, stepping down and Chairman, John Robertson, relinquishing his duties but staying on as a Non-Executive Director. Replacing them are Jonathan Stewart as Chairman, and Andrew Ross as Managing Director, both from Gawler Resources which may hint to shareholders that Elixir may be focusing more on the Gulf of Mexico for growth, rather than the cold, wet and expensive North Sea…
