22 April 2015
Red Emperor Resources NL
QUARTERLY ACTIVITIES REPORT
FOR THE PERIOD ENDING 31 MARCH 2015 AND APPENDIX 5B
The Board of Red Emperor Resources NL ("Red Emperor" or the "Company") is
pleased to provide the following commentary and Appendix 5B for the period
ending 31 March 2015.
Philippines (SC55)
On 2 March 2015 Red Emperor signed a Farmin Agreement with Otto Energy
Philippines Inc. (a wholly owned subsidiary of Otto Energy Ltd (ASX: OEL "Otto"
) to farm in to the highly prospective offshore Philippines Block, Service
Contract 55 ("SC55").
SC55 is located in the southwest Palawan Basin, covers an area of 9,880km2 and
was awarded to Otto Energy Investments Ltd (formerly NorAsian Energy Ltd) in
2005. It is a deep-water block in the middle of a proven regional oil and gas
fairway that extends from the productive offshore Borneo region in the
southwest to the offshore Philippine production assets northwest of Palawan.
SC55 contains a number of distinct exploration play types including the Hawkeye
turbidite clastic prospect and the material Cinco carbonate gas/condensate
prospect, as well as a number of follow-up leads. The permit provides a
material opportunity and a series of possible drill targets in an exploration
campaign that will be undertaken during the remaining term of the service
contract.
The Hawkeye prospect was identified on 2D seismic originally acquired by Otto
in 2007 and further defined with the 600km2 3D seismic acquisition in late
2009. Hawkeye contains a 'Best Estimate' STOIIP of ~480 MMbbls of oil and a
'Best Estimate' Gross Prospective Resource of 112 MMbbls (RMP net 14.3 MMbbls)
of oil according to the Operator, Otto Energy.
The Cinco gas/carbonate prospect was identified as part of a 1,800km2 3D
seismic program undertaken by BHPB in 2010 that focused on a trend of carbonate
prospects and leads, with Cinco being analogous to the Malampaya producing gas/
condensate field in the Philippines. Cinco contains a 'Best Estimate' GIIP of
2.4 Tcf with a 'Best Estimate' Gross Prospective Resource of 1.6 Tcf of gas and
57 MMbbls of associated condensate (RMP net 208 Bcf) and 7.3 MMbbls). The Net
Prospective Resources exclude Government Share of profit oil.
Hawkeye Prospect
The Hawkeye prospect is interpreted to be a large, relatively undeformed
Miocene aged toe thrust, analogous to offset discoveries in Malaysia. The
Miocene turbidite reservoir is likely to be tested by a well sitting in
approximately 1,690m of water. The prospect was first identified on 2D seismic
data, which was later followed up by a 3D seismic acquisition in early 2010.
The 3D data has further matured the prospect to drillable status. Hawkeye is a
well imaged, toe thrust structure of more than 500m vertical relief, 50km2 area
with attendant Direct Hydrocarbon Indicators. Multiple flat spots are evident
with an associated oil column consistent with detailed rock property analysis.
The Operator's estimate of the Hawkeye Prospective Resources is shown below:
(MMbbls) STOIIP Gross Recoverable Net RMP
Low Estimate 87 19 2.4
Best Estimate 484 112 14.3
High Estimate 1,539 401 51.1
*Source: Otto Energy
The Operator, Otto Energy, is anticipating a spud date in early Q3 2015 for the
Hawkeye-1 well. The exploration well has been designed to reach the top of
target reservoir approximately 1,000m below the sea bed floor and intersect the
gas oil contact to prove or otherwise the presence of the oil leg.
Otto has entered into a Letter of Intent with Maersk to secure the Maersk
Venturer ultra-deepwater drillship to drill the Hawkeye-1 exploration well. As
one of the most modern and advanced drillships in the world, this rig has the
required capability to drill the Hawkeye-1 exploration well. All required long
lead items have now been procured and stored in yards in Labuan, Malaysia.
Drilling of the Hawkeye-1 exploration well is expected to commence in early Q3
2015.
Please refer to ASX Announcement on 2 March 2015 for more details on the
transaction.
Puntland
The Company's Joint Venture (JV) continues to significantly reduce its presence
in Bosaso, Puntland and will refrain from any operational activity and
associated expenditures pending a resolution of the political situation between
the Regional Government of Puntland and the Federal Government of Somalia
regarding the legitimacy of oil concession contracts.
Given the considerable efforts taken by the JV to date in Puntland (Somalia),
the JV has requested a two year extension to the current exploration period
from the Government of Puntland to allow time for these political challenges to
be resolved.
Red Emperor is optimistic that agreements can be reached to enable the JV to
remain in control of its two PSCs that provide both exposure and leverage to
potentially multiple billion barrels of oil.
Georgia
Despite Red Emperor again being advised during the quarter by the operator,
Strait Oil & Gas ("Strait"), that an agreed drilling program and a valid
drilling licence was in place with the Georgian Oil and Gas Ministry, drilling
activity did not commence in Block VIb. Whilst a drill rig and all required
services remain available, Strait's major shareholder, Range Resources Limited
("Range"), who are obligated to fund the drilling program and the costs to the
end of Phase III of the Production Sharing Contract ("PSC") on behalf of the
Joint Venture, has been focused on the disposal of the asset as opposed to
continued further investment.
Red Emperor understands that representatives of Strait will be negotiating to
extend the PSC that covers Block VIb, which was due to expire in March 2015,
however there is no certainty that such an outcome can or will be achieved.
While Red Emperor is hopeful that it will, in the meantime the Company
continues to stand by its position with respect to Range's obligations to drill
a second well and cover the costs of Phase III on Block VIb, which formed part
of the "drilling program" contemplated in its 2011 Subscription Agreement (the
"Agreement"). Red Emperor has met its financial commitment with respect to the
Agreement and is disappointed that drilling activity is yet to commence. The
company will continue to protect its interests with respect to both blocks and
the value they represent.
Corporate
During the quarter the Company placed 66,558,555 shares at A$0.032 per share (£
0.016) to raise approximately A$2.13m (£1.06m) from sophisticated investors
both in Australia and the UK. The funds raised from the placement will be used
for purposes associated with the Company's share of upcoming drilling costs in
the Philippines.
Red Emperor sold its direct equity investment in Highfield Resources Limited
(ASX: HFR) during the quarter in accordance with its treasury management
strategy. The shares were sold at price of 80c per share, which netted the
Company A$798,279 after brokerage, a 66% return on its A$480,000 investment.
Appendix 5B Summary - Consolidated statement of cash flows
Cash flows related to operating Current quarter Year to date (6
activities months)
$A'000
$A'000
1.1 Receipts from product sales and - -
related debtors
1.2 Payments for (a) exploration & (131) (346)
evaluation
- -
(b) development
- -
(c) production
(294) (816)
(d) administration
1.3 Dividends received - -
1.4 Interest and other items of a 77 260
similar nature received
1.5 Interest and other costs of finance - -
paid
1.6 Income taxes paid - -
1.7 Other (provide details if material) - -
Net Operating Cash Flows (348) (902)
Cash flows related to investing
activities
1.8 Payment for purchases of: (a) - -
prospects
- (182)
(b) equity investments
- (59)
(c) investment in associate
1.9 Proceeds from sale of: (a) - -
prospects
798 798
(b) equity investments
- -
(c) other fixed assets
1.10 Loans to other entities - -
1.11 Loans repaid by other entities - -
1.12 Other (provide details if material) - -
Net investing cash flows 798 557
1.13 Total operating and investing cash 450 (345)
flows (carried forward)
Cash flows related to financing
activities
1.14 Proceeds from issues of shares, 2,123 2,123
options, etc.
1.15 Proceeds from sale of forfeited - -
shares
1.16 Proceeds from borrowings - -
1.17 Repayment of borrowings - -
1.18 Dividends paid - -
1.19 Other (provide details if material) (137) (137)
Net financing cash flows 1,986 1,986
Net increase (decrease) in cash 2,436 1,641
held
1.20 Cash at beginning of quarter/year 9,526 10,321
to date
1.21 Exchange rate adjustments to item - -
1.20
1.22 Cash at end of quarter 11,962 11,962
For further information please visit www.redemperorresources.com or contact:
Red Emperor
Greg Bandy +61 8 9212 0102
Grant Thornton UK LLP
Philip Secrett/Jen Clarke/Jamie Barklem +44 20 7383 5100
Brandon Hill Capital Limited
Jonathan Evans +44 20 3463
5010