Quarterly Activities Report for the Period Ended 30 June 2021

Source Press Release
Company Elixir Energy LimitedPetro Matad Limited 
Tags Hydrogen, Renewable Energy, CBM, Exploration, Upstream Activities, Capital Spending, ESG/CSR, Strategy - Upstream, Strategy - Corporate
Date July 29, 2021

HIGHLIGHTS

  • Successful capital raising in the quarter
  • Very strong balance sheet funding expanded work program for many years
  • Multiple wells drilled and coals now measured in a new sub-basin

MANGAGING DIRECTOR’S REPORT TO SHAREHOLDERS FOR THE QUARTER

During the quarter Elixir successfully undertook a capital raising which massively strengthened our balance sheet. We had around $33 million in the bank at 30th June and this has facilitated the acceleration of our exploration and appraisal work program in the country.

The program has already borne fruit with the identification of a new coal basin at Kingston (Refer ASX:EXR Operations Update 20 July 2021). Given the low cost nature of CBM drilling in Mongolia and the relatively modest exploration commitments under the PSC, we are fully funded for many years to come.

We own 100% of our PSC, which provides for great flexibility in managing our work program compared to the usual scenario in the oil and gas industry of working with joint venture partners. That has been recently demonstrated through the rapid expansion of our 2021 work program, which in the case of a joint venture would have no doubt required lengthy and possibly blocking negotiations with a partner.

As our asset matures, having a 100% ownership position gives us the maximum possible optionality in dealing with the possible co or sole developers of the asset, on our terms.

The technical program for the quarter consisted of drilling 6 wells and acquiring 220 km of 2D seismic. Two wells were drilled in the Yangir sub-basin and both intersected substantial gas saturated coal seams. The last well to spud in the quarter was Kingston-1S, which intersected 12 metres of coal in a previously un-discovered depocentre. All wells drilled and seismic acquired continue to add significant information to our geological knowledge in this highly under-explored area.

We have now identified 3 sub-basins of potential CBM resource holding interest in the PSC: Nomgon, Yangir and Kingston. Further appraisal drilling work at the first of these is imminent – with a view to undertaking the first stage of production testing work in the months to come. Yangir hosted very thick coals (measured at 50 metres) and “pipeline quality” gas composition with minimal CO2. The work at Kingston is still ongoing.

We have two drilling companies working at present and expect many more wells to come in the balance of 2021 - and the years thereafter.

Night-time drilling in the South Gobi

On the COVID front, Mongolia has been experiencing what much of the rest of the World (including Australia) is currently, or will have to, face in the months to come. This is the combination of a high vaccination rate and still ongoing community transmission – but reduced medical impacts. The Government responses will be familiar to our Australian readers, with changing limitations on work and social fronts, including lock-downs and travel restrictions.

Our local team and sub-contractors have been resilient in adapting to what has been thrown at them, including such actions as remaining in the field for months to avoid transmission risks. For that we thank them.

The Government of Mongolia has also managed to get on with business in the face of COVID, including conducting a Presidential election in June which saw a recent Prime Minister ascend to that position.

Closer to home, it has been pleasing to see the machinery of Government with respect to our petroleum industry peers has still been functioning effectively, with for instance AIM listed Petro Matad being granted a production licence for crude oil in the country’s East. We have submitted an expanded budget to the petroleum regulator for our updated 2021 work program and that is being processed at present.

We also continue to methodically expand options for our new clean energy business focused on the very high quality renewables resources of the South Gobi region. As foreshadowed in the last quarterly report, we have now shipped an Australian manufactured SODAR unit to Mongolia to be used to measure wind resources to a “bankable” level.

We are also looking at solar projects in the same area and engaging with relevant stakeholders with respect to a possible green hydrogen project. As noted in the last quarterly, we consider Mongolia to be exceptionally well located to produce and supply green hydrogen to possible material future customers such as Chinese steel mills located in Inner Mongolia.

Although we consider pursuing such clean energy options is basically good business, doing so can also be very well received by investors who increasingly desire their investee companies to meet high Environmental, Social and Governance (ESG) standards.

Elixir has adopted a globally recognised ESG framework designed by the World Economic Forum (WEF) and has engaged impact monitoring technology company, Socialsuite, to measure our performance against that. Updates are provided in the ESG section on our website.

Post the end of the quarter, I was elected as a Director of the Business Council of Mongolia (BCM), which attests to the depth and endurance of the Company’s relationships in the country. Other Directors include representatives from some of Mongolia’s largest local companies, as well as from foreign investors such as Rio Tinto. I look forward to contributing to the BCM’s mission of supporting the country’s business environment for locals and foreign investors alike.

MONGOLIAN GAS EXPLORATION – 100% INTEREST IN CBM PSC

Elixir Energy Limited (“Elixir”) has a 100% interest in the Nomgon IX CBM PSC, located proximate to the Chinese border in Mongolia’s South Gobi region. The 30,000 square kilometre PSC was entered into with the Mongolian Government in September 2018.

The PSC has a minimum ten year exploration period and a thirty year (extendable) production period. Elixir is currently ahead of its exploration expenditure commitments under the PSC, even notwithstanding the unexpected force majeure event that is COVID-19.

During the quarter the Company undertook exploration and appraisal work on the PSC, with a focus on the following areas:

  • Drilling the following wells:
    • The Yangir-2 and West-Yangir-1 core-holes
    • The Temee-1S, Cracker-1S, Manlai-1S and Kingston 1S strat-holes.
  • Acquiring 220 kilometres of 2D seismic. This is currently being processed and interpreted.
  • Planning for an expansion of the original 2021 program, including a new total of 20 wells for the calendar year and acquiring another 300 kilometres of 2D seismic. Required regulatory approvals for this have been lodged and the processing thereof is under way.

All work was undertaken safely, without environmental incident and in accordance with COVID-19 related protocols.

OTHER ASSETS

Elixir’s only remaining legacy interest outside of the Nomgon PSC is a long established US domiciled subsidiary that holds an escrowed cash bond pledged to a third party worth ~US$0.6 million, covering a possible abandonment liability of a similar amount. The Company continues to work through mechanisms to close this legacy issue out.

CORPORATE AND FINANCIAL

Capital raising

During the quarter the Company announced the successful closing of a placement under which 27,778,778 shares were issued at a price of 36c/share, raising $10 million (before costs). A Share Purchase Plan (SPP) which immediately followed the placement raised $16.6 million from 1,400 shareholders, on the same terms as the placement.

Changes in Issued Capital

  Number 
Opening ordinary shares 31 March 2021  811,151,916 
Shares issued under the placement and SPP  73,861,460 
Exercise of unlisted options  6,000,000 
Closing ordinary shares on 30 June 2021  891,013,376 

The fully diluted equity structure of Elixir as at 30 June 2021 was as follows:

Security type  Number 
Ordinary shares  891,013,376 
Class C performance rights  16,000,000 
Unlisted employee options  5,330,000 

Financial

Elixir’s cash reserves as at 30 June 2021 were $32.8 million. The Company has no debt.

During the quarter, the Company spent $1.5 million on exploration activities, primarily on annual Government rents & fees, drilling and other ancillary costs.

Board and Management

No changes to Board and Management occurred in the quarter.

Annual and other General Meetings

No General Meetings were held during the quarter.

Appendix 5B Disclosures

The attached Appendix 5B includes an amount of $127,000 in items 6.1 and 6.2 (total) which constitutes compensation for the Managing Director and non-executive director fees paid during the quarter. In addition, $219,000 was paid to Key Management Personnel for services provided. There were no other related party transactions.

SUMMARY OF PETROLEUM TENEMENTS HELD AS AT 31 MARCH 2021

  % Interest  Tenement  Location 
Held at end of quarter  100%  Nomgon IX CBM PSC  Southern Mongolia 
Acquired during quarter 
Disposed during quarter 
Source: EvaluateEnergy® ©2022 EvaluateEnergy Ltd