HIGHLIGHTS
West Erregulla Field
• Warrego and Alcoa of Australia Limited executed a long term1 binding Gas Sales Agreement (GSA) for the sale of natural gas from West Erregulla
• Total contract quantity is significant - 155 PJ, commencing in 2024
• The GSA is of sufficient size and term to support FID and underpin a gas processing development
• West Erregulla field appraisal campaign commenced with WE-3, located in the undrilled northern area of the field, which spudded on 22 September 2020
• Subsequent to the end of the quarter, in early October, Warrego and Joint Venture partner Strike Energy agreed to work jointly on an aligned basis to develop the West Erregulla gas field and upscaled Phase 1 plant capacity to 80TJ/d delivered
• The Joint Venture is targeting Phase 1 Final Investment Decision (FID) before the end of Q1 CY2021
• The Joint Venture approved the WE-5 well to be drilled post completion of WE-3 and WE-4
• Drilling results from the WE-3, WE-4 and WE-5 wells will provide valuable sub-surface data for future resource estimates and certification
Corporate & Financial
• Warrego director, Mr David Biggs, appointed to executive role as CEO Australia effective 1 August 2020
• Mr Owain Franks who elected to step down as an Executive Director of the Company effective from 1 September 2020 to balance the Board following Mr David Biggs’ appointment, remains in the role of Chief Financial Officer responsible for finance, strategy and delivery
• Mr John Newman, Warrego’s Perth-based General Counsel, was appointed as Company Secretary effective 1 September 2020
• Mr Ian Kirkham resigned as Company Secretary effective 1 September 2020
• On 21 July 2020, Tranche 2 of the May 2020 fundraising was completed with $2.7 million raised
• Australian HQ in Perth officially opened on 3 August 2020
• Consolidated cash at 30 September 2020 was $11,411,000
• On 14 October 2020, subsequent to the end of the quarter, Warrego announced a $32 million capital raise via a two tranche Placement. A Share Purchase Plan was also announced.
WESTERN AUSTRALIA
EP469 (50%) West Erregulla Gas Fields
Exploration Permit located onshore North Perth Basin, Western Australia, targeting conventional gas reservoirs
Warrego and Alcoa sign large scale, long term gas sales agreement
On 28 September 2020 Warrego announced it had signed a binding Gas Sales Agreement (GSA) with Alcoa of Australia Limited (Alcoa) for the long term2 supply of a total of 155 petajoules (PJ) of natural gas from the West Erregulla gas field in EP469.
The GSA will commence on 1 January 2024, subject to a positive project Final Investment Decision (FID) by the Joint Venture (anticipated by the end of Q1 CY2021). The significant size and term of the foundation GSA with Alcoa is such that Warrego does not need to secure additional GSAs to support a FID being made.
West Erregulla Field Appraisal Campaign Commenced
The WE-3 exploration/appraisal well was spudded on 22 September 2020 after a successful and safe mobilisation of Ensign Rig 970.
At the time of this Quarterly Report, the Joint Venture had successfully executed the drilling and cementing of the 26” subsurface section with the final section depth (TD) of 1,210m. Subsequently the Operator announced that during drilling of the first 17.5” intermediate hole section, the rate of penetration reduced significantly and on inspection of the bottom hole assembly it was found that it had parted just above the mud motor and the drill bit and the drill and motor remained in hole upon retrieval to surface. Subsequent fishing operations were unsuccessful and the decision was made to set a cement plug before side-tracking the well and drilling ahead.
The exploration/appraisal plan provides for the drilling of WE-3, located in the undrilled northern area of the West Erregulla gas field, followed by the drilling of WE-4. The Joint Venture has agreed to drill the WE-5 well following the drilling of WE-4.
West Erregulla Field Development
Subsequent to the end of the quarter, in early October, Warrego and Joint Venture partner Strike Energy executed a binding Heads of Agreement (HoA) to ensure both parties are aligned on the development of the West Erregulla gas field.
The agreement provides an agreed pathway for the Phase 1 development of West Erregulla including:
• Gas processing and the necessary plant capacity;
• Gas balancing and gas sales; and
• Optimisation of timing and alignment of critical activities including a Final Investment Decision (FID) and the current appraisal drilling campaign.
Phase 1 development of West Erregulla is subject to FID being taken by the parties by the end of Q1 CY2021, completion of definitive documentation for the gas processing arrangements, and completion of appropriate limited due diligence.
Upstream Development
On the back of substantial foundation gas sales by both parties3, the Joint Venture has agreed a significant increase in Phase 1 capacity to 80 TJ/d delivered to the Dampier to Bunbury Natural Gas Pipeline (DBNGP). The Australian Gas Infrastructure Group (AGIG) remains the preferred proponent to build, own and operate the facility and will complete a supplementary FEED study for the larger capacity plant by the end of CY2020.
The Joint Venture partners plan to seek financing for the construction of the Phase 1 development on a co-ordinated basis. The partners expect to generate superior financing outcomes by following this process.
The Joint Venture is expected to be in a position to consider FID by the end of Q1 CY2021 following the drilling, testing and evaluation of the WE-3 and, possibly, WE-4 appraisal wells. The target date for first gas sales from West Erregulla remains mid-2022. Warrego and Strike have agreed an appropriate gas balancing arrangement in the HoA to align the interests of both parties with respect to the difference in total contracted volumes and contract commencement dates for each foundation gas sales agreement.
Production Licence
Throughout the quarter, work in preparation for conversion of EP469 to a Production Licence (PL) was progressed, the West Erregulla Kingia-High Cliff having been declared a gas discovery by the regulator in February 2020, a key precondition to the Production Licence application process. 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
Background
The STP-EPA-0127 Application was acquired in March 2019 after exercising a call option which had been held y the Company since April 2016. On final grant, at 2.2million acres (8,700 km2 ), this will be the largest exploration permit in the onshore Perth Basin. It 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.
Operations
The Native Title negotiations which are advancing are the final step before the Exploration Permit can be issued by the Department of Mines, Industry Regulation and Safety. Meetings with Native Title groups are ongoing.
CADIZ REGION, SPAIN
TESORILLO PROJECT (85% ownership of Operator and permits)
Targeting conventional sandstone gas reservoirs in 94,000 acres in Southern Spain
Background
The Tesorillo Project in the Cadiz province of Southern Spain is owned and operated by Tarba Energia S.L. (“Tarba”). The Tesorillo project is owned 85% by Warrego and 15% by UK AIM listed Prospex Energy plc (“Prospex”) through Tarba. The project comprises two petroleum exploration licences, the Tesorillo and Ruedalabola Permits, which cover 94,000 acres in total.
Operations
Following election of the Sánchez II coalition Government in January 2020, Tarba has been working with the Ministry for Ecological Transition and the Demographic Challenge to progress approvals and permitting. The process was slowed by the State of Emergency in Spain, lifted on 21 June 2020 (which suspended all official government activities until it was lifted).
Tarba has continued to maintain an active program of regional government and stakeholder engagement. Subject to further COVID-19 related delays, Warrego anticipates that the process for drilling approvals and permitting should recommence before the end of 2020. It is not yet clear what impact the recently declared state of emergency in Madrid will have on the Government’s timetable for approvals and permitting.
Decisions on the level of activity to be undertaken by Tarba in the next 12 to 18 months will be made in due course in the light of the deteriorating COVID-19 situation and the progress of the approvals process.
SEVILLE REGION, SPAIN
EL ROMERAL PROJECT (50.1% ownership of Operator and permits on approval of transfer)
Integrated gas production and power station operation located in the Guadalquivir basin on 76,600 acres in southern Spain. Three producing wells, 13 prospects and multiple low-cost development opportunities
Background
El Romeral is an integrated gas production and power station operation located in the Guadalquivir basin immediately east of Seville in southern Spain. The purchase agreement was signed by Tarba in December 2019 with an economic date commencing July 2019. The acquisition will complete on the transfer of licences to Tarba which are subject to customary regulatory approval. Warrego holds a 50.1% interest in El Romeral through Tarba.
The COVID induced State of Emergency in Spain in the early part of 2020 meant that the Spanish Government undertook no official business such as approving permit transfers in that period. The State of Emergency was lifted on 21 June 2020.
We are now awaiting approval of the transfer of licences however, due to the backlog of applications, the likely timing of the approval remains unclear. As mentioned for Tesorillo, it is not yet clear what impact the recently declared state of emergency in Madrid will have on the Government’s timetable for approvals and permitting.
El Romeral comprises three production licences, a 100%-owned 8.1 MW power station supplied by three producing wells, 13 prospects and multiple low-cost development opportunities with the potential to significantly increase gas production, electricity generation and revenue.The El Romeral power station has been run at a minimum level during the pandemic to protect the employees.
Drilling and development opportunities
The Tarba JV is preparing a plan to increase production rates and drill up to three new wells. Permitting work has commenced but approvals will depend on the ending of COVID-19 restrictions. El Romeral represents a low cost and rapid route to commercialisation, via tie-ins to the Project-owned ower station, from the latter part of 2020 and in 2021.
CORPORATE
Placements and Share Purchase Plan
On 21 July 2020, Tranche Two of the May 2020 fundraising was completed with $2.7 million raised (20,501,865 fully paid ordinary shares) following shareholder approval at the 16 July 2020 online EGM. Tranche Two was part of the May 2020 $15 million institutional share placement over two tranches of the Company’s shares at an issue price of A$0.13 per share. These funds will be used to drill the WE3 exploration/appraisal well and secure long lead items for WE-4.
Subsequent to the end of the quarter, Warrego announced it would raise $32 million via a two tranche placement to institutional and sophisticated investors at a price of A$0.21 per share. Tranche One was completed on 20 October 2020, raising a total of $26 million (124,000,000 fully paid ordinary shares).
Tranche Two, which is subject to shareholder approval at the online AGM on 25 November 2020, is expected to settle on the 27 November 2020 with a total of $6 million to be raised (28.6 million fully paid ordinary shares to be issued). Warrego’s Chairman, Greg Columbus, has subscribed for 1.5 million shares in Tranche Two of the Placement, which is subject to shareholder approval. Proceeds from the raising will be used primarily for the drilling of WE-4 and WE-5, the planned 3D seismic survey over the remainder of EP469, and general working capital.
On 14 October 2020, Warrego announced a Share Purchase Plan (“SPP”) for existing eligible shareholders at a price of A$0.21 per share subject to an aggregate cap of $4 million. Under the terms of the SPP, eligible Warrego shareholders with a registered address in Australia or New Zealand on the Company’s register at 7:00pm AEDT (Sydney time) on 13 October 2020, will have the opportunity to apply for up to $30,000 of New Shares, across all their holdings regardless of how many shares they currently hold, free of any brokerage, commission and transaction costs. Warrego has absolute
discretion to scale back SPP applications depending on demand. The SPP Offer opened on 22 October 2020 and will close at 5:00pm AEDT (Sydney time) on 5 November 2020. Shareholders with questions in relation to the SPP may contact the Registrar on: 1300 737 760 (callers within Australia) or +61 2 9290 9600 (callers from outside Australia), from 8.15am to 5.30pm (Sydney time), Monday to Friday.
Reorganisation and relocation
On 1 August 2020, Mr David Biggs was appointed to an executive role as CEO Australia to lead the Company’s Perth-based Australian team focused on commercialising the West Erregulla gas field and developing complementary opportunities.
In order rebalance the board after the appointment of Mr David Biggs to an executive role Mr Owain Franks, a member of the Warrego Board since 2011, elected to step down as an Executive Director of the Company with effect from 1 September 2020. He will remain in the role of Chief Financial Officer responsible for finance, strategy and delivery.
Effective 1 September 2020 Mr Ian Kirkham stepped down as Company Secretary and resigned from the Company with Mr John Newman, Warrego’s Perth-based General Counsel, being appointed to the role.
The transfer of Warrego’s Australian headquarters from Sydney to Perth was completed in August 2020. The Perth office will facilitate commercial, development and gas marketing activities for West Erregulla gas. The Company’s Aberdeen office will also be closed before the end of the 2020 calendar year.
Following a resolution by the Board, the Group has applied for voluntary deregistration of the two dormant subsidiary companies Warrego Energy (Operations) Pty Ltd and Warrego Energy (Investments) Pty Ltd in order to simplify its corporate structure.
During the quarter, the Company’s Board agreed, after taking into account the uncertain economic conditions prevailing due to the impact of COVID-19, that fees and salaries paid to Executive Directors, Senior Executives and Non-Executive Directors would be reduced by 50% from 1 April. The outlook was reassessed in July 2020 and remuneration reverted to previous levels from 1 August 2020.
FINANCIAL
Consolidated cash at 30 September 2020 was $11,411,000. Principal outflows for the quarter were $5,550,000 for West Erregulla exploration. A summary of Warrego’s cash flow for the Quarter and year to date is contained in the attached
Appendix 5B statement.
