Empyrean pleased with new Sacgasco deal

Empyrean announced on Wednesday that it entered into a new agreement with Sacgasco to increase its interest in the package of gas projects in the Sacramento Basin, onshore California, previously announced on 15 May and amended on 16 June.

The AIM-traded company said it would use part of the placing proceeds of £0.66m announced on 20 June, as well as pre-existing cash, to pay entirely for the increased interest through to the drilling of the Dempsey-1 Well which was anticipated to begin in the third quarter.

Under the new agreement with Sacgasco, Empyrean would pay a further $90k, having already paid an amount of US$10k, within three working days of signing a definitive farm-out agreement and joint operating agreement with Sacgasco in order to secure rights to participate in the Dempsey Prospect.

Empyrean would then be required to pay $2m upon being cash called by Sacgasco towards the dry hole cost of the Dempsey-1 Well, to earn its increased 30% working interest in the prospect.

If the Dempsey-1 well costs exceed $3.2m, then Empyrean would pay 30% of any further costs under standard JOA terms.

Assuming completion of the farm-in and the payment of both the Dempsey deposit and the consideration, the interests in the Dempsey Gas Project would be operator Sacgasco at 45%, Bombora Natural Energy at 15%, Xstate Resources at 10%, and Empyrean at 30%.

Under the new agreement with Sacgasco, Empyrean aldo agreed to pay 33.33% of the dry hole well costs in the next Alvares appraisal well to earn a 25% working interest in the Alvares prospect.

Empyrean's 33.33% earn-in was capped at a total well cost for Alvares of $10m, after which Empyrean will pay 25% of the costs moving forward.

The board also agreed to pay $20k upon signing the farm-out agreement and JOA to reimburse Sacgasco for back costs associated with leasing and permitting the Alvares prospect.

It said the joint venture partners have decided that drilling a well at the Dempsey Prospect was a first ranking priority before any proposal or decision to drill a well at Alvares would be made.

Assuming completion of the farm-in and the payment of both the Alvares deposit and the consideration, the interests in the Alvares Gas Project would be operator Sacgasco at 44%, Bombora Natural Energy at 10%, Xstate Resources at 21%, and Empyrean at 25%.

Finally under the new agreement with Sacgasco, Empyrean would provide technical assistance to Sacgasco to further mature prospects within the Dempsey Trend AMI in order to earn an increased 30% working interest.

In addition, Empyrean would have an option to participate in the already identified prospects.

“Empyrean continues to work hard to provide its shareholders with potentially transformational exploration opportunities,” said Empyrean CEO Tom Kelly.

“The increased interest in the Sacramento Basin projects reflects our increasing confidence and understanding of the opportunity to be part of an exciting package that offers multiple chances to make very large gas discoveries in a region of the US with increasing gas demand and excellent existing surface infrastructure.

Kelly said any discovery made could be very quickly put into production, to create early cash flow.

“We are excited to be working closely and very cooperatively with the operator, Sacgasco, to give our companies the best chance of success.”