UKCS Block 15/13b - Guinea Prospect (EXR 35%, diluting to 13.125%)
In late May, Elixir--in conjunction with its alliance partner, Granby Oil & Gas--announced the successful farmout of the Guinea prospect located in Block 15/13b to a consortium of Nexen, Gas Plus Italiana, and Albion Petroleum. Under the terms of the farmin agreements, Elixir will retain a 13.125% interest in the block with its share of well costs being fully funded by Nexen, Gas Plus, and Albion.
The Guinea prospect is a robust four-way dip closed Palaeocene structure which lies on trend with producing fields such as Balmoral and Dumbarton. Nexen drilled the Yeoman discovery on the neighboring Block 15/18b to the south in 2005.
On unrisked basis, the Guinea structure is estimated to host Prospective Resources of between 65 million (low case) and 120 million (high case) barrels of oil on Block 15/13b if hydrocarbons are present, with a mid case estimate of 91 million barrels. The well is scheduled to be drilled during the fourth quarter with a drilling rig already contracted by the operator, Nexen. The pre-requisite site surveys were completed earlier in the year.
Other 22nd Round License Farmouts
A farmout program is continuing for Elixir’s four other 22nd Round Promote licenses. A Heads of Agreement has been signed with Canadian-listed Albion Petroleum for a portfolio farmin. Albion will earn an interest in between three and five licenses by funding a portion of the well costs of the first well on each license on a 2-for-1 basis. The Guinea well forms part of this group.
Progress is being made on the remainder of the 22nd Round farmout portfolio with at least one other license close to being fully farmed-out.
Northern North Sea Blocks 211/18b & 211/8b (EXR 80%)
A long offset seismic survey is scheduled to be acquired within the next month across the Leopard prospect in Block 211/18b. The objective is to further de-risk the prospect prior to resuming an intensified farmout campaign.
More seismic data has also been acquired for the Panther prospect in Block 211/ 8b in order to mature this combined structural and stratigraphic play for farmout.
24th Seaward Licensing Round
Elixir participated in the recent 24th UK offshore licensing round for which applications closed on June 15, 2006. Elixir, in partnership with two experienced North Sea companies, made a number of applications.
Announcement of the successful awards is expected to be made by the DTI in September or possibly even early October given the success of the round.
The 24th Seaward Licensing Round marked a 35-year high in terms of industry interest. Applications from 121 companies, including 25 new North Sea entrants, were made covering 147 licenses.
Elixir and its partners have submitted strong technical applications and hope to be successful. However, competition is fierce which demonstrates continuing market interest in the UK North Sea despite the recent well-publicized tax changes.
Forward Business Strategy
Elixir was listed on the ASX only two years ago. In the intervening period it has established an excellent portfolio of 14 UKCS licenses and participated in three exploration wells. Although the company is yet to record drilling success in the area, it is fully committed to exploring the diverse array of prospects and leads across its license areas.
Most of the reasons that brought the company to the North Sea remain valid today, including relatively large prospects for smaller companies, a good fiscal regime by global standards, production infrastructure, and a pool of experienced people.
However the increasing competition and sharply rising costs in the region need to be recognized in our business model going forward. Consequently Elixir has stepped up its efforts to bring producing or near-production assets into the portfolio. Such projects would add diversity and balance to our existing exploration base in addition to providing cashflow.
The addition of producing assets would complement the Company's higher risk exploration activity and reduce the current dependence upon capital markets to fund future exploration.
Apart from the route of securing production through exploration success, there are other options available to grow the Company and establish a more diverse, balanced asset base. Two potential routes are either by asset or corporate acquisitions. Both options will be considered if they can add demonstrable shareholder value to Elixir.
Elixir’s search is not being limited to the UK North Sea given the growing competition and high asset prices. Such areas as the wider North Sea, Central Europe, North Africa, and North America are being actively investigated.
During the June quarter the Company made a successful share placement to sophisticated investors of 6.5 million new shares raising a total of $2.6 million (£1.1 million) before expenses. The placement was arranged and coordinated by Argonaut Securities.
Share Capital Changes
Two other changes to the capital structure have occurred in recent months.
In June, 10 million discovery options issued as part-consideration for the purchase of Block 211/22b but only exercisable upon a commercial discovery in the Jaguar well were cancelled. Subsequent to the end of the quarter, 9.025 million shares were released from a two-year escrow effective since the Company listed on the ASX in July 2004.
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