AXP Energy Limited (AXP) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to today's webinar. My name is Alex Paull from Investor Stream, and I'll be your host this morning. Today, we have AXP Energy Managing Director, Dan Lanskey, who will provide an update on the Transformational Farm into Block 9 Onshore Syria, announced to the market on June 15 as well as providing an update on ongoing operations at the Charlie #1 well located on the 100% owned Edwards lease in Oklahoma and the broader field development strategy. Following the briefing, Dan will address any questions you may have. We'll attempt to get through as many questions as time permits. Please feel free to send in your questions via the Zoom platform or also e-mail them to me at [email protected]. Many of you have already taken the opportunity to submit questions ahead of time, which is greatly appreciated. Finally, a copy of the webinar will also be available on AXP's social media platforms later today. But for now, I'd like to throw it over to Dan to kick things off for us. Dan, the floor is yours.

Thank you, Alex, and thank you, everyone, for joining us today. AXP Energy is entering an important period of growth, combining a near-term low-cost development drilling program in Oklahoma with a potentially transformational farming opportunity in Syria Block 9. The Oklahoma portfolio is designed to deliver repeatable production and cash flow, while Block 9 provides exposure to 2 mature high-impact drilling prospects within a substantial 10,039 square kilometer onshore position. This presentation outlines the opportunity, the work program and the key catalysts that we believe can materially reshape AXP Energy over the next coming 18 months. By way of introduction, my name is Dan Lanskey. I'm the Managing Director of AXP Energy listed on the ASX and also on the OTC markets. I'll start with the disclaimer, and I wish to highlight the third paragraph on this slide. I'm going to be talking about prospective resource estimates today, and we need to be clear that prospective resources are undiscovered and have both a risk of discovery and a risk of development. There is no certainty that any part of them will be discovered or if discovered, commercially produced. So this is included in the hard copy or the soft copy that you'll receive of this presentation. As I said, we're in an exciting phase with AXP Energy. Over the last 6 months, we've seen a dynamic change in the oil industry globally. One of the things we were focusing on at AXP was onshore low-risk development drilling in Oklahoma to complement our current production in Colorado. We're drilling low-risk, low-cost vertical well in a multi-stack formation area of Oklahoma. It's a repeatable process that I've been involved in for over 20 years now, low cost, low risk and known reserves and resources. Syria onshore is a separate opportunity, and we have acquired the right to farm in on a 25% position on a nonoperating interest onshore on a production sharing contract in Syria. It's an exciting time in Syria. There's a lot of new major players coming back to play since sanctions were lifted in the last year. And we've got an opportunity to farm-in on an area that has multiple identified high-impact targets. I'll talk more about each of the opportunities in turn. In Oklahoma, as most of you that are watching will probably know, we took a position here in the December quarter last year to lease acreage in Oklahoma in Northeast corner, targeting the Mississippi Lime well. We have been drilling in this area now since 2010 separately on other companies with a high success rate. Previously, we developed a small field here that made $30 million of revenue in 2015 and had a high profit margin due to the structure of the leasing opportunities here. What we're targeting here is the Mississippi Lime zone at about 4,300 feet. It's 300-foot thick. It's naturally fractured. It has a high liquid content of 66% plus NGLs and some gas as well. This is a lateral extension formation. We drilled over 80 wells in the area. And wherever you drill in this area, you do intersect the Mississippi Lime, you do get different results. Some wells are spectacular for a vertical well and others are average. However, we have multiple stacked pipe -- sorry, multiple stacked zones behind pipe and should zones deplete at deeper depths, we can come back up and still recover economical reserves above those initial target of the Mississippi Lime. What we're doing up here, we've drilled 1 well. The well was a success to a point where we're producing commercial hydrocarbons. It's an average well. We are working on it at the moment to enhance the production, and we are planning to drill another 2 wells this calendar year over the coming quarter in the December quarter. What we're looking to do is duplicate our success previously to the south of where we are and look to continue a runway of expansion acreage should this prove to be successful. These are low cost, $650,000 per well. And at $80 oil, we're currently netting $60 netback to us after taxes and royalty. We saw a period of $100 oil and the netback was $80 per barrel of oil. So the $650,000 investment, the payback at current prices is about 14 to 16 months on a $650,000 investment. It's repeatable. It's low cost. We can do it all day with a capital program to drive the drill bit, and that's what we're planning to do over the coming 6 to 12 months here in Oklahoma. That's a very high-level look at Oklahoma. I'm now going to walk on to the Syria opportunity, which is a substantial opportunity for a small ASX-listed company. It's very rare that we get first-mover opportunity in such a market that's reopening to international investment only recently. What we have achieved through the teamwork of the Board is the right to acquire a 25% working interest in the block situated at Block 9 Northwest Syria, as you can see, there's a 2-well program we're planning to run over the next 18 months to 24 months. This block has previously had $25 million of investment sunk prior to 2011 when the exploration activities were suspended. You'll see there the best estimated unrisked prospective resources are quite substantial. They were previously reported by parties involved in the operations prior to 2012 and have been reported to public markets in North America. At AXP, we have not done the required review and assessment internally to be making our own statements, and these are prospective resources with best estimates and there's a disclaimer and talking about what is a prospective resource. The majors are starting to come back in here and play. It's going -- it's -- every week, we're reading new news articles about this area. And one of the key drivers is that the location of Syria where it sits below Turkey and west of Iraq is becoming an alternate route to the Mediterranean instead of the Straight of Hormuz. So there's a lot of investment coming back in to open up pipelines to renew exploration and reinvigorate what was a robust oil and gas industry prior to civil disruption in 2011. You'll note the location of Block 9 to the Northwest. And one of the things that's happening, this is a fast-moving environment in the last 6 months is you'll note that ConocoPhillips has moved offshore Block 3, which is located to the southwest of Block 9 that AXP has the right to farm-in on subject to conditions. And we're seeing other larger players coming in. We saw recently TotalEnergy there. We're seeing joint ventures between QatarEnergy and ConocoPhillips. We're seeing many of the gulf and regional players come back in with -- the outcome they're looking for is to rebuild existing production, infrastructure and go and explore the vast resources of Syria. Our situation is that, as I said, we have entered into an agreement with Simpora Latakia Limited as the operator with the right to earn a 25% participating interest over the 10,039 square kilometers of Block 9. Highly prospective acreage, well-known province in the [ pelmeroide ] area on Northern Syria. There's offset production to the Southeast. There are a number of prospects that have been identified by both 2D and 3D seismic, and there's a derisked well campaign that we're going to go into further detail. Many of the sanctions have been lifted through for Syria and many of the larger companies are now coming back to play with the opportunity that this reenergizing of the Syria industry is allowing for parties to participate. As I said, it's very rare for a small ASX-listed company to participate in such a substantial opportunity with a low capital entry point that has significant previous investment made by the previous parties involved. Looking at what we're looking to do in the next 18 months, there's a number of prospects that have been identified by seismic, as I have said, they have been worked up and a number of prospects were identified and an initial well at the Itheria #1 well was started to be drilled in 2011. You'll see the numbers there that on a 100% field basis on a best estimate, there's a large target of potential resource here. And this is -- this could be transformational for a small company like AXP. Our entry point is a low capital investment, and it puts our toe on the water of a large opportunity that is now recognized globally as a fast-evolving country to be involved in the next stage of the oil and gas exploration and development. Again, we are talking about prospective resource estimates on best estimates, and these will change over time as a better understanding of the opportunity evolves. We'll look at the Itheria #1 prospect. As I said before, there was a well was spudded in July 2011, and there is a plan to reenter this well potentially next year in Q4 2027. Drilling was suspended at just over 2,000 meters and plugged back to intermediate casing level when -- due to geopolitical events. This well is on a 4-way faulted anticline. It's targeting multiple stacked pay zones. The target depth was 2,700 meters. And as you can see, it was suspended before reaching the primary target. Information gathered from this drilling of this well is going to be a very big part of seismic interpretation now, which is part of the program going forward to use the markers intersected to go back to the time lapse on the seismic and better define the prospects as we go into our next planned drilling phase in 2027. The Bashaer prospect, again, we've got a 3-way faulted anticline well defined by seismic. One of the exciting parts I see in the future of this is this is like opening a time capsule. All of this seismic was shot pre-2011 and the amount of technical advancement with seismic interpretation and other data offset wells to this field is pretty exciting to see what will happen when the application of 2026 technology is put back on this seismic. It's reinterpreted, and we'll get a clearer picture of what we're sitting on. There's a 3-way trap here. Again, we've got multiple stack pays identified, potential pay zones. There's -- we're in a petroleum-rich area. This whole northern sector of Syria is well known for its production. So we've got 2 identified prospects. We're going to -- the plan is to go back next year in the latter half of 2027 and drill these prospects and look for what we can find. You can see here total depth of this well is potentially 2,600 meters and so this will be a lower drilling cost than the Itheria well, which has been suspended back in 2011. There is risk here, of course, there's geological risk, there's completion risk, drilling risk. And so these are high-risk, high number targets that have the potential to create big numbers for discoveries. A background on Syria. It's large recoverable oil reserves. Pre-war 2011, it was 380,000 barrels of oil per day. And so far, they've restored 110,000 barrels a day of current production. There's a lot of money coming in. There's a lot of changes happening in the regime and the regulatory environment, and we're seeing large investments from both U.S. and Gulf-based majors coming into Syria. Again, one of the key things here is infrastructure was put in place. The ports on the West Coast lead out to the Mediterranean. Iraq to the East is already using the corridor of Syria to the Mediterranean in Turkey to replace exports that normally go out through the Strait of Hormuz. So we've got a large opportunity being developed here to make that Southeastern export market move back through Syria over land onto the ports on the West Coast. As you can see, there's 3 ports, and there's also pipelines head north into Turkey. If we are successful as a group here with our Block 9 exploration program, there is enough infrastructure and low-cost tie-ins available, and there's plenty of capacity to supply into that infrastructure should there be some success in '27, '28. The time line for Syria, as you can see, is we executed the agreement in June '26, which gives us the right to acquire up to 25% nonoperating working interest. Our commitment will be 33% of the ongoing cost to achieve that. There will be the need for approval and other conditions to be met before this is finalized, including approval by the Syrian government in the future. There will be a final decision to commit, which is a $1 million advance on future exploration costs that will be in the September quarter 2026. At that point, there will be the opportunity to work with contractors to put together the work program. Part of the program is to revisit the seismic, reassess the seismic using data from the initial well. We now have markers to go with the timing on the seismic, and so we'll have better defined targets prior to moving a drill rig on, hopefully, in the December quarter 2027. So as you can see, there's a work program -- proposed work program subject to some conditions precedent, which we're working through. And this is pretty exciting stuff. As I keep saying, it's a very rare early mover opportunity without a large capital tag for a small ASX-listed company potentially to get involved in a world-class opportunity in Syria. The Board currently is on the screen there, you'll see that there's a mix of nonexecutive and executive directors. We've got 2 engineers on board. We -- under the agreement, should we proceed with the proposed farm-in. We have members of the other group coming on board. We've been in constant contact with those. The partners that we are prospectively joining on this opportunity have a long history of international oil discoveries, management, financial. It's a very good solid team. They're a private company at the moment, and there will be more news to follow on who and how that interaction will be put in place between the 2 companies. So when I look at this myself, you've got to break it into the 2 sides is the complementary low-cost drilling program in Oklahoma. We'll drill some wells. We'll create some cash flow. Not every well is perfect. However, we've had a very good success rate here, low cost, low risk in a proven oil province. The second part of our plan is this large opportunity where we have the right potentially to farm-in for a 25% interest on a large-scale, world-class exploration project in Syria that has already had $25 million of historical investment in the ground and planning. And we see the Syria government and many of the major governments around the world and major oil players reentering this opportunity. It's a very fast-moving environment, and we've had a very clear opportunity to be an early mover in here without the big CapEx expenses that normally come with such a large-scale opportunity. Thank you for your time. I just wanted to introduce this as a high level and happy to move into questions, Alex, when you're ready.

Thanks, Dan, thanks very much for your presentation. To start, can you just give us a bit more detail on the Charlie #1? It's fair to say that this has been a bit of a protracted process in terms of delivering a flow rate?

Yes. Look, we drilled the well in the December quarter last year. We were on a very minimal budget. We went in. Our budget constraints meant that we were only able to drill 1 well. It is normal to drill more than that and put in place a saltwater disposal facility. We've got less than USD 1 million invested. We drilled a well. We intersected 300 feet of the Mississippi Lime. We fracked the well. We put it on to production. It has been what I would call a lower level of the expectation. We had days of 40 to 50 BOE per day out of this well. We normally see a lot higher than that. We're currently in the process of enhancing the production still in the same interval, the 300-foot Mississippi Lime. I'm currently in Oklahoma. The well went back on pump last night after a little bit of a rework, and we're waiting to see what the numbers look like. One of the things I will say is the well did intercept the 300-foot thick Mississippi Lime. The logs and every piece of information we have from mud logs and electric logs indicate that this well should produce better than it is. And we're doing the best we can here at the moment in Oklahoma with the right people to get that to produce better. And we are already planning our step-out wells based on the data we received. We are only a few miles south of the field that I developed with AusTex Oil, where we drilled over 80 successful wells, and we saw IP rates of between 100 and 300 barrels of oil a day from a similar reservoir as we see here on this lease. So it's just we need to go. 1 well doesn't make an oilfield. We need to drill 3 to 5. We've got a saltwater disposal facility in place now. We're in for less than USD 1 million at the moment, and that does not make an oilfield. We need to continue on, and it's part of our plan for the next 18 months while we work on this larger opportunity.

Thanks, Dan. Now your most recent update pointed to ongoing works. I think you alluded to it a little bit there. But can you just give us some context as to how these works are going? And when can we expect an update?

Yes. As I said, the well was put on pump yesterday. We're seeing oil and gas produced today. I was out on the well. We're going to give it 4 or 5 days. Early next week, we'll give some advice to the market as to the reaction the well has had. It's an ongoing process. We're monitoring it every day, and we'll inform the market next week.

Thanks, Dan. Now you mentioned it just before, but you made a lot of comparisons with the Edwards lease to the ground you drilled at AusTex. Now this drilling occurred 15 years ago, and I assume there's been a lot of production since this time. What makes you think you can still replicate this success based on the geology that you see today?

Well, a couple of things that have happened in that period -- sorry, -- when we were drilling up until 2016, the investment was free flowing, wells were drilled back to back, and there was a lot of success in this area. From 2016 until recent times, there's been very little development here. The fields were proven by holding acreage with 1 well across certain size, whether it was 640-acre lease or an 80-acre lease. This area can be drilled out at a 40-acre -- on a 40-acre spacing per well. They're low cost, low risk. We have intercepted over 300-feet of the Mississippi Lime in this well. We have other stacked pays on top of that. So we still have uphole potential. We have offset analogs, wells to the north, the south, the west and the east. We are in a 1,000-acre patch here that has not been developed. The previous owner of the lease was not oil-friendly. The current owner of the lease is very much participating with us to develop this 1,000 acres, 40-acre spacing, we could drill up to 20 additional wells on this location on this lease. As I said, we've got offset successful wells north, south, east and west of us. We're tied into a gas sales line, and we have demonstrated with the well logs from the Charlie # 1 that we have the reservoir. We will need to step out from this lease -- from this well pad and keep drilling. And what you'll find is over the next 3 to 4 wells, not only will we find the same Mississippi Lime interval, we will get better at the completion techniques and the ongoing production. One of the things is during this period, many of the people we used to contract, some of them went away from the industry. They're now back working with us. We've got -- as of last week, I've got this field superintendent and the engineer that was involved with us on the ground with us working here now. So the recipe here, we've got the people, we've got the project, and we just got to keep at it, and 1 well does not make an oilfield.

Are you considering a gas-to-power operation in Oklahoma based on learnings from Colorado? And what would be different?

Absolutely. A couple of things are happening as we speak that this Charlie well consistently has produced 60 Mcf of gas per day on top of running a gas-powered pump jack and a gas-powered water disposal pump. So the well is producing in excess of 80 Mcf as our first well. We are in touch with the parties that work with us in Colorado. They've expressed their desire to come back and do this, where we will be looking at that in the coming weeks. Even with our first 60 Mcf, it's back on the ground. Most recently, what's occurred is, as we all are aware, the price of Bitcoin has dropped back to $60-odd thousand per Bitcoin. What the modeling is showing that cost per -- including CapEx to produce 1 Bitcoin using gas power on-site assets and Starlink runs at about $20,000 to $22,000 per Bitcoin. So our previous ongoing partnership with the team that we're in Colorado, they have deployed their operations in Canada, Kansas and other parts of the U.S. and they're continuing to improve the efficiency of their equipment. The cost of the equipment is dropping because of the current Bitcoin market, and there is an opportunity here. One of the models that they're pushing to us is they're demonstrating a $6 to $8 an Mcf net return to the company that's supplying the gas, we're currently receiving a net $2.10 per Mcf of gas. We drilled 4 or 5 more wells here on the Edwards lease, and we can get our gas supply up to somewhere between 400 and 500 Mcf. There's a real opportunity to -- with the option of pushing gas either into the reticulated pipeline or into the gensets depending on the pricing of the Bitcoin, the pricing of the equipment and the downstream gas price, which is currently about $3 an Mcf gross.

Thanks, Dan. Now just turning to Block 9. Does AXP and your project partners expect to attract majors to this Block?