Empyrean addressing China challenges after mixed year

The AIM-traded firm, which remains pre-revenue, said that in China it conducted a joint regional oil migration study with the China National Offshore Oil Company (CNOOC) on Block 29/11 in the Pearl River Mouth Basin.

It said the study aimed to map oil migration pathways from nearby proven source rocks and extend these into Block 29/11.

Additionally, a 3D seismic inversion project was undertaken to assess whether light oil pay could be distinguished from water-bearing reservoirs.

However, in June, the company announced that it had not started drilling the Topaz prospect within the required timeframe, leading to the formal termination of the permit for Block 29/11.

A letter of demand from CNOOC regarding alleged outstanding obligations under the production sharing contract (PSC) was received in August, which Empyrean disputed.

The company said it was working to resolve the issue, and had submitted a proposal for further cooperation on the block.

In Indonesia, the Duyung PSC project, where Empyrean holds an 8.5% stake, saw progress with the signing of a long-term export gas sales agreement (GSA) between the operator, Conrad Asia Energy, and Sembcorp Gas in August.

That followed the agreement of key terms earlier in the reporting period.

Empyrean said it saw the GSA as a key precursor to Conrad’s planned sell-down of its interest in the Duyung PSC, with negotiations well underway.

In addition, the Mako joint venture partners signed a binding domestic GSA in June for gas sales to PT Perusahaan Gas Negara Tbk, Indonesia's national oil company, with deliveries expected after the completion of a pipeline connecting to the domestic gas market.

A separate export GSA was finalised in September for gas sales to Singapore, marking another significant milestone for the Mako field.

In California’s Sacramento Basin, where Empyrean holds a 25% to 30% interest, no significant work was conducted during the year.

On the corporate side, Empyrean said it completed two placings during the reporting period, raising a combined $2.78m to support its activities.

Additionally, it restructured its convertible loan note debt, reducing the face value and securing a moratorium on interest payments.

Empyrean said it remained focused on resolving its challenges in China while progressing its gas projects in Indonesia, with a view to long-term revenue generation.

“Empyrean has conducted systematic and thorough exploration on Block 29/11 since commencing its cooperation on the block with CNOOC in late 2016,” said chief executive officer Tom Kelly.

“This included 608 square kilometres of 3D seismic, the drilling of the Jade exploration well and various post well analyses including regional oil migration and simultaneous seismic inversion studies.

“Despite these works, and due in part to various market challenges, including Covid, Empyrean has not been able to fund a second exploration well on Block 29/11.”

Kelly said that, as announced on 13 June, the company had not commenced the drilling of the Topaz prospect and thus did not meet the requirements to continue the cooperation on Block 29/11 with CNOOC, with the permit thus formally terminating on 12 June.

“On 24 August 2024 Empyrean received a letter of demand from CNOOC alleging that Empyrean has outstanding obligations under the PSC.

“The company disputes the letter and is endeavouring to settle the matter amicably under the dispute resolution clauses provided for in the PSC.

“Separately Empyrean has put forward a submission to CNOOC for further cooperation on Block 29/11.”

Tom Kelly said Empyrean's immediate focus was to maximise the value in its 8.5% interest in the Mako gas field discovery on the Duyung permit in Indonesia.

“The sell down process being coordinated by the operator of the Duyung permit through Jefferies International Bank has taken longer than expected.

“Empyrean expects that completion of the export GSA, which was pleasingly signed on 31 August, was the necessary precursor to the completion of any sell down transaction.”

At 0958 BST, shares in Empyrean Energy were down 13.83% at 0.26p.

Reporting by Josh White for Sharecast.com.