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Red Gully woes sink Empire subsidiary

EMPIRE Oil & Gas has put its subsidiary Empire Oil Company into voluntary administration over a $15.1 million working capital loan relating to its only producing well, Red Gully-1.

Red Gully woes sink Empire subsidiary

Empire Oil & Gas announced this morning that its subsidiary's directors had appointed Ferrier Hodgson's Andrew Smith, Peter McCluskey and Martin Jones as voluntary administrators of the subsidiary and the Red Gully-related assets.
 
Energy News has confirmed that the subsidiary is not in default of any interest payments to MinRes.
 
The options could be to sell the Red Gully assets, which would essentially turn Empire Oil & Gas back into a plain explorer focused on permits to the north which most analysts and punters are more interested in anyway.
 
"They have licences in the northern part of the permit which are interesting, and this is where people see the real opportunity in Empire - the Kingia/High Cliff play similar to Waitsia, with a couple of drill-ready prospects in Lockyer Deep and North Erregulla it holds with Norwest Energy," Hartleys analyst Aidan Bradley told Energy News.
 
"That's where most of the interest in Empire is for me and others."
 
The Empire subsidiary does not hold those licences but Empire Oil & Gas has guaranteed the $15.1 million debt to MinRes.
 
So in the event MinRes did not get its money back through the subsidiary, Empire Oil & Gas would have to make up any shortfall.
 
The receivers with Empire Oil & Gas are now looking at whether Red Gully-1 can be brought back into production again, and if so what the reserves are worth; along with what the plant is worth, and if it's decided it's more than $15 million it could be sold off and Empire Oil & Gas would just focus on those northern permits.
 
If it's decided in the courts that the subsidiary's value is less than $15.1 million then there may be a case for Empire Oil & Gas to pay the shortfall, which would be tough for it to do.
 
Empire Oil & Gas' latest quarterly revealed positive operating cash flow of $1.2 million with the reduction of one-off expenditure on Red Gully North-1 during the second quarter, while cash at June 30 was $2.3 million after ongoing fixed asset capital spend on the compressor project during Q2.
 
The plant at cost is worth more than $15.1 million, but it depends on what state it's in. 
 
There is still 6 petajoules of 2P reserves in the ground, but if they can't be produced it's not worth much.
 
Empire Oil & Gas has failed to bring Red Gully-1 online after shutting it down for the reserve assessment, but if the well can be brought back on cheaply to produce the 6PJ for Alcoa then it's likely to be worth a bit more than $15.1 million.
 
However, that's all to be decided.
 
MinRes said yesterday it issued the notice of default and demand and appointed Deloitte pair James Donnelly and Jason Tracy as receivers and managers of the Red Gully assets to "protect its interests".
 
The Perth-based miner said it had taken the steps following ongoing interruption at the Red Gully-1 well owned by the Empire subsidiary and consultation with its board and Empire Oil & Gas.
 
MinRes and the Deloitte pair will work closely with Empire's board and management, including the oiler's CEO Angus Walker, to "ensure the best possible outcome".
 
The implications of those northern licences on these latest events will be the key in determining the kind of exploration company that will emerge.

 

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