Quarterly Activities Report for the Period Ended 30 September 2021

Source Press Release
Company Elixir Energy Limited 
Tags Renewable Energy, Hydrogen, Upstream Activities, Financial & Operating Data, Strategy - Corporate
Date October 29, 2021

MANGAGING DIRECTOR’S REPORT TO SHAREHOLDERS FOR THE QUARTER

The global energy sector has seen widespread extreme prices – particularly for gas – in the last quarter. The reasons for this are multiple, interactive and complex.

In our view, Elixir can draw considerable comfort that these drivers are highly supportive of the Company’s strategy to explore for gas - and our complementary hydrogen production opportunity – just North of the Chinese border in Mongolia.

What is commonly called the “energy transition” from the current fossil fuel dominated global energy supply matrix to one that will need massive amounts of carbon neutral energy supplies will be long and disruptive. The current very high prices show the consequences of this in commodity markets and the impact of COVID in numerous areas has exacerbated the issue materially.

Recent events have ranged from: poor wind conditions in Europe; hurricane related reductions in US oil and gas supplies; disruptions to the maintenance of Russian gas supply infrastructure; faster than expected energy demand increases; stronger than normal OPEC production discipline; strong Chinese policies to reduce local pollution levels; etc.

We draw out the following conclusions for Elixir:

  1. The desire for reliability of energy supply will have been strengthened – and in our view China would view very nearby Mongolian gas resources as presenting much less supply risks than further flung alternatives.
  2. The role of gas as a long term bridging fuel to support the introduction of ever more intermittent renewables has been reinforced.

Notwithstanding the evident growing pains, the energy transition will not be held back – and Elixir’s hydrogen strategy takes advantage of the laws of physics rather than wishful thinking – namely that supplying hydrogen to China will be massively advantaged by immediate proximity.

We recently announced the test results of the Nomgon 6 well, which was designed to give us the first stage production data we need for next year’s full blown pilot production program. These results were extremely promising, with:

  • The early flow of gas to surface, validating the high gas saturation levels previously assessed.
  • High water flow rates of 280 barrels of water per day.
    • Both of these factors are highly supportive of positive CBM production economics, through factors such as cost & design of wells, the shape of the gas production curve and early cash- flows.
    • Measurements of water salinity levels, which feed into water handling design parameters.

Our exploration program has continued in parallel with the Nomgon sub-basin testing program. In the quarter we added another coal-bearing sub-basin at Richcairn and appraisal work here is ongoing. Further exploration wells at Bag and Richcairn West are following in the balance of this calendar year.

Our “rinse and repeat” model of progressively adding coal bearing sub-basins to our inventory has now established four such sub-basins – Nomgon, Yangir, Kingston and Richcairn. The latter was identified on seismic alone – a first for Elixir.


In addition to drilling, we are around half way through a second phase 300 kilometre 2D seismic acquisition program, which is designed to provide an inventory of more and more drilling targets under the “rinse and repeat” model.

The design and costing of the 2022 pilot program is well underway and we aim to submit the results of this to the relevant Government authorities before the end of the year, as part of the annual approvals processes. I will travel to Ulaanbaatar shortly, for the first time since January 2020, with a view to engaging with the regulators on this (and other matters) and also with our multiple other in-country stakeholders.

COVID remains wide-spread in Mongolia, albeit its impact is reduced by a widespread vaccination program. The pandemic (or now effectively endemic) continues to interrupt our operations from time to time, but our team has remained very adaptable in dealing with the challenges this has thrown up. This has been recently illustrated by the excellent efforts to manage the complex Nomgon 6 test program – the first such program in the country – with our online Australian team interacting very well with the onsite Mongolians.

Like many other oil and gas companies, Elixir has carefully considered what new business opportunities the energy transition might offer it that take advantage of its existing skill-sets and do not present a value destructive distraction. We consider that successfully operating a gas exploration business in Mongolia has required the development of key functional relationships with Governments and communities at multiple levels – and those same stakeholders are highly relevant to the development of a green hydrogen business in the same region.

As the first mover in this area, we have recently signed a MOU with Mongolia’s Ministry of Energy to work with it in exploring hydrogen opportunities and other stakeholders are also being progressively engaged. In the meantime, we are garnering bankable quality renewable resource data in the region from our SODAR equipment.

Our desktop analysis has concluded that the combination of wind and solar resources in the Gobi region is exceptional – and the locational advantages this region brings in terms of immediate proximity to e.g. Chinese steel mills, should place green hydrogen produced here firmly in the globally lowest delivered cost category.

From time to time, I undertake online presentations or interviews and these are available on Elixir’s website and our own Youtube channel. Here is a link to a recent one with Crux Investors

- https://youtu.be/Z-XxBuWTcXo

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 Nomgon Central-1 and Nomgon 6 core-holes.
    • The Kingston-2S, Kingston-3S, Richcairn-1S and Richcairn-2S strat-holes.
  • Commencing the acquisition of a second phase 2D seismic program for the year, targeting an additional 300 kilometres in addition to the 220 kilometres already acquired, processed and interpreted.

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

HYDROGEN STRATEGY

Post the end of the quarter the Company announced the entering into of a Memorandum of Understanding (MOU) with Mongolia’s Ministry of Energy under which the parties will seek to investigate the potential for hydrogen in Mongolia.

Elixir has deployed a SODAR unit in the area of its operations in the South Gobi to measure wind and solar renewable resources to a bankable standard.

 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

There was no capital raising during the quarter.

Changes in Issued Capital

  Number 
Opening ordinary shares 30 June 2021  891,013,376 
Shares issued 
Closing ordinary shares on 30 September 2021  891,013,376 

There were no changes in issued capital in the quarter and the fully diluted equity structure of Elixir as at 30 September 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 September 2021 were $30.9 million. The Company has no debt.

During the quarter, the Company spent $1.8 million on exploration activities, primarily on drilling, seismic acquisition/processing, G&G 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 $272,000 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, $37,000 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