SOURCE: Target Energy Limited

Target Energy Limited

April 30, 2014 13:38 ET

Target Energy Limited Issues March 2014 Quarterly Report

WEST PERTH, AUSTRALIA--(Marketwired - Apr 30, 2014) -  US-focused oil and gas producer Target Energy Limited ("Target") (OTCQX: TEXQY) (ASX: TEX) is pleased to issue its Quarterly Report for the quarter ending 31 March 2014.

  • Record oil flows from Sydney #2
  • Wagga Wagga #1 flowing oil after successful frac stimulation
  • BOA North #4 drilled and awaiting Fusselman completion
  • BOA 12 #3 drilled with Wolfberry frac planned for early May
  • New well (Homar #1) added to 2014 Fairway drilling program
  • Company raises A$6m via issue of Convertible Notes

1. Operations

Permian Basin, Texas

1.1. Fairway Project - Howard & Glasscock Counties (Target 45%-60% WI)

1.1.1. Drilling

BOA 12 #3 (Target 60% WI)

BOA 12 #3 is located approximately 550m (1,800 ft) south-east of the Company's 2011 BOA 12 #1 well in Howard County. Drilling commenced on 25 February with the well reaching Total Depth at 3,101m (10,175 ft) on 20 March 2014.

The well has been completed as an oil producer. A fracture stimulation of the Wolfberry section has been scheduled for early May 2014 after testing in the Fusselman Carbonate did not recover commercial quantities of oil. 

BOA North #4 (Target 60% WI)

BOA North #4 is located approximately 550m (1,800 ft) north-east of the Company's 2011 BOA 12 #1 well. Drilling commenced on 25 March and concluded with the well reaching Total Depth at 3,093.8m (10,150 ft) on 10 April 2014.

Preliminary analysis of wireline log data has confirmed that the well has encountered potential pay in the Fusselman Carbonate, which has been intersected 8.5 metres (28 feet) updip to the BOA 12 #1 well, as well as in numerous zones within the Wolfberry section. The well has been completed as an oil producer, with testing of the Fusselman section expected to be underway by early May.

Wagga Wagga #2 (Target 45% WI)

The Wagga Wagga #2 well is situated approximately 706 metres (2,316 ft) south of Wagga Wagga #1 in Glasscock County. The well is to be drilled to a depth of approximately 3,048m (10,000 ft) to test the Fusselman and Wolfberry sections. Drilling commenced on 16 April 2014 and at the time of writing the well was drilling ahead at a depth of 1,790m (5,872 ft).

1.1.2. Completions

Sydney #2 (Target 60% WI)

Sydney #2 is located approximately 800 metres east of Sydney #1 in Glasscock County and targeted both the Wolfberry and Fusselman sections. The well has been initially completed as an oil producer from the Fusselman Carbonate with an Initial Production rate of 316 BOEPD (270 BOPD with 277 mfcgd) announced on 19 February 2014 that climbed to a peak of 520 BOEPD (415 BOPD plus 640 mcfgd -- a production record for Target Energy) before easing back and stabilising at approximately 250 BOEPD (200 BOPD with 300 mcfgd).

Wagga Wagga #1 (Target 45% WI)

At Wagga Wagga #1, a 7-stage fracture stimulation of the Wolfberry section was performed on 28 March 2014. The stimulation covered an interval of 470 metres, using approximately 25,000 barrels of load water. To date approximately 45% of the load water has been recovered, with the well averaging 57 BOPD with 127 BWPD over the last seven days (Table 1), with the water cut gradually decreasing. 

 
Well Reporting Summary - Wagga Wagga #1
Name and Type of Well   Wagga Wagga #1, Oil & Gas producer
Well Location   Glasscock Co, Texas
Lease   S221, Block 29, A-496; W&NW RR Co Survey, Glasscock Co
TEX Working Interest   45%
Geological Rock Type   Wolfberry - carbonates, shales and minor sandstone
Depth of Zones Tested   2,390m - 2,865m
Type of Tests Undertaken   Ongoing flow-back after fracture stimulation
Duration of Tests Undertaken   7 days
Hydrocarbon Phases Recovered   Oil, Gas
Other recovery   2,992 Barrels of Load Water (total load now recovered: 45%)
Choke Size Used   On pump
Flow Rates   57 BOPD + 127 BWPD (20 Apr - 26 Apr 2014)
Number of Fracture Stimulations   7 zones stimulated
Material Volumes of Non-Hydrocarbon Gases   Nil
     

Table 1

1.2. Forward Program

2014 Drilling Program

A further seven wells are planned to be drilled in the Fairway Project including new wells on the Company's BOA, Ballarat, Bunbury and Taree lease-holdings (Fig 1). A well on the Homar lease (Homar #1) has been added to the drilling schedule to follow Wagga Wagga #2.

2. Current Indicative Drilling Schedule

             
Estimated
Timing*
  Prospect   Location   Target
Working Interest (WI)
Completion Underway   BOA 12 #3   Howard Co, Tx   60%
Completion Underway   BOA North #4   Howard Co, Tx   60%
Drilling Underway   Wagga Wagga #2   Glasscock Co, Tx   45%
May 2014   Homar #1   Howard Co, Tx   60%
Q2 2014   Ballarat #1   Glasscock Co   60%
Q3 2014   Bunbury #1 / Taree #1 / BOA North #5   Howard / Glasscock Co   60%
Q4 2014   Darwin #4 / Ballarat #2   Howard / Glasscock Co   60%
             

*Timing indicative only - actual order, timing and well selection will vary.

3. Production (1 Jan - 31 Mar)

                                     
Project   TEX WI   Gross Gas Prodn in Period (mmcf)   Cumulative Gross Gas Prodn (mmcf)   Net Gas Prodn in Period (mmcf)   Cumulative Net Gas Prodn
(mmcf)
  Gross Oil Prodn in period (BO)   Cumulative Gross
Oil Prodn (BO)
  Net Oil Prodn in Period (BO)   Cumulative Net Oil Prodn
(BO)
Section 28   25%   22.0   2,364.1   5.5   591.0   137   90,905   34   22,726
East Chalkley   35%   3.5   56.9   1.2   19.9   2,475   114,246   866   39,986
Merta   25%   9.2   396.2   2.3   99.1   53   5,106   13   1,276
Fairway+   60%   48.9   159.2   29.3   95.5   20,619   92,594   12,372   55,557
Total       83.6   2,976.5   38.4   805.5   23,284   302,851   13,285   119,545
                                     

Net Production is scaled to Target's Working Interest, before royalties; mmcf = million cubic feet; mmcfgd = million cubic feet of gas per day; BO = barrels of oil, BOPD = barrels of oil per day, BOEPD = barrels of oil equivalent per day (Target reports a thermal equivalent when combining gas and oil production, where 1BOE = 6 mcf).

+ The Appendix 5B "Mining exploration entity and oil and gas exploration entity quarterly report" shows revenue for the quarter of $475,000. Revenue proceeds are received two months after the month of production. Therefore the revenue reported in the Appendix 5B relates to production between November 2013 and January 2014, a period in which Permian Basin production was adversely affected by adverse weather and shutdowns. The significant Sydney #2 well did not commence production until late January 2014.

4. Lease Holdings

Project   Lease / Unit   Basin   Description   Depth Limits   TEX WI   Royalty   Gross Acres   Net Acres
Fairway                                
    BOA   Permian   S12, Block 33, T-2S, A-1353; T&P RR Co Survey, Howard Co   None   60%   25%   640.0   384.0
    Darwin   Permian   S44, Block 33, T-1S, A-1292; T&P RR Co Survey, Howard Co   None   60%   25%   640.0   384.0
    Bunbury   Permian   S102 A-1405; S103 A-1405; S104 A-1495; Bl 29 W&NW RR Co, Howard Co   None   60%   25%   918.0   550.8
    Ballarat   Permian   S 184 & 185, Bl 28, A-815 & A-A483; W&NW RR Survey, Glasscock Co   None   60%   25%   355.7   213.4
    Taree   Permian   S193, Bl 28, A-815 and A-A483; W&NW RR Co Survey, Glasscock Co   None   60%   25%   320.0   192.0
    Sydney   Permian   S188 Block 29 A-170; W&NW RR Co Survey, Glasscock Co   None   60%   25%   480.0   288.0
    Unnamed   Permian   S4, Block 32, T-2-S, A-1354; T & P RR Co Survey, Howard Co   None   60%   25%   610.0   366.0
    Unnamed   Permian   S24, Bl 35 A-1538; S26 Bl 35 A-1415; T&P RR Co Survey, Howard Co   None   60%   25%   260.0   156.0
    Wagga Wagga   Permian   S221, Block 29, A-496; W&NW RR Co Survey, Glasscock Co   None   45%   25%   305.0   137.3
Merta                                
    Merta No. 1 Well Gas Unit No. 2   Gulf Coast   S3 A-219 International and Great Northern RR Co Survey, Wharton Co   7,650 ft - 7,880 ft   25%   25.7%   303.0   75.7
Section 28                                
    SML #A-1, A-3 Unit   Gulf Coast   St Martin Ph   None   25%   28%   40.0   10.0
    SML #A-2 Unit   Gulf Coast   St Martin Ph   None   25%   28%   40.0   10.0
E Chalkley                                
    Unit Agreement: CK W RA SU   Gulf Coast   S11, 13, 14 &15, T12S-R6W, Cameron Ph   8,000 ft - 10,000 ft   35%   30.5%   714.9   250.2
        Total 5626   3017

There were no changes in Target's lease-holdings during the reporting period.

Corporate

On 26 February 2014, the Company advised that it had agreed terms with sophisticated and professional investors to raise A$6,000,000 by issuance of a secured, Convertible Note (2014 Convertible Notes). 

The issue of the 2014 Convertible Notes took place in two tranches with Tranche 1 of 66 million convertible notes (with a face value of $3.3 million) settled on 5 March 2014 and the second tranche of 54 million convertible notes (with a face value of $2.7 million) issued following the receipt of shareholder approval at a General Meeting held on 4 April 2014. The Company also secured shareholder approval for Target's Chairman, Chris Rowe, to participate in the second tranche. As a result of the early redemption of $600,000 of 2013 Convertible Notes from the Tranche 1 funding, 2013 Noteholders were issued 8,571,428 unlisted options exercisable at 7 cents by no later than 1 Oct 2014. Subsequent to quarter end, as a result of the early redemption of $1,200,000 of 2013 Convertible Notes from the Tranche 2 funding, 2013 Noteholders were issued 17,142,858 unlisted options exercisable at 7 cents by no later than 1 Oct 2014.

The funds raised from the 2014 Convertible Notes are being deployed in the Fairway project in the Permian Basin, where a 10-well 2014 drilling program is underway. 

     
    Key terms of the 2014 Convertible Notes
Instrument   Unlisted convertible notes in Target Energy Limited (Convertible Notes).
Total Facility   A$ 6.0 million
Offer Structure   Tranche 1: A$3.30 m (66 million Convertible Notes pursuant to ASX Listing Rule 7.1 capacity)
Tranche 2: A$2.70 m (54 million Convertible Notes, approved at 4 April 2014 EGM).
Max number of Convert. Notes   120 million.
Maturity Date   31 March 2017 (3 year term).
Face Value   5.0 cents.
Coupon Rate   10.0% p.a., payable quarterly in arrears.
Conversion Ratio   1:1 (Each Convertible Note, if converted, will convert into one fully paid ordinary share of Target Energy (Share)).
Conversion   Convertible at the election of the noteholder at any time after 6 months from Tranche 1 Settlement Date.
Each conversion must be for a minimum of 200,000 Convertible Notes and in multiples of 200,000 thereafter, or the balance of the noteholder's holding if less than 200,000 Convertible Notes are held or remain.
Conversions received during a month will be processed within 5 business days of month end.
Ranking on conversion   Shares issued on conversion of the Convertible Notes will rank equally in all respects with existing Shares.
Transferability   The Convertible Notes will be transferable but only to sophisticated or professional investors.
Voting Rights   The Convertible Notes shall not provide for any voting rights at shareholder meetings of the Issuer.
Early Redemption   The Issuer may elect to redeem the notes early. If the Issuer redeems the notes early it must repay the Face Value, accrued interest owing on the notes and issue one Unlisted Early Redemption Option in respect of each Convertible Note redeemed, unless the noteholder elects to convert the Convertible Notes into Shares.
Each Unlisted Early Redemption Option will entitle the holder to acquire one Share exercisable on or before the Maturity Date at an exercise price of 8 cents.
Security   The Notes are secured by a charge over the Company's interest in the Fairway project.
     

5. Disclosures

Disclosures Pursuant to ASX Waiver dated 6 November 2013
2013 Convertible Notes   No. Issued   Date of Issue   Face Value   No. Redeemed   Date of Redemption   Face Value   No. on Issue at 31 March 2014   Face Value   No. that can be issued before 1 October 2014 pursuant to shareholder approvals and ASX waiver dated 6 November 2013
Face Value of 7c, maturity 1 October 2014                                    
    14,285,714   25 July 2013   1,000,000   8,571,428   7 March 2014   600,000       400,000    
    11,428,572   15 November 2013   800,000                   800,000    
    25,714,286       1,800,000   8,571,428       600,000   17,142,858   1,200,000   0
                                     
                                     
Early Redemption Options   No. Issued   Date of Issue   No. Exercised               No. on Issue at 31 March 2014       No. that can be issued before 1 October 2014 pursuant to shareholder approvals and ASX waiver dated 6 November 2013
Exercise price of 7 cents, expiry 1 October 2014                                    
    8,571,428   7 March 2014   0                        
    8,571,428       0               8,571,428       17,142,858
 
Note: 17,142,858 notes were redeemed on 11 April 2014. 17,142,858 Early redemption options were issued accordingly as set out in the Notice of Meeting for the AGM held on 14 November 2013.

Laurence Roe
Managing Director

NOTE: In accordance with ASX Listing Rules, any hydrocarbon reserves and/or drilling update information in this report has been reviewed and signed off by Mr Laurence Roe, B Sc, Managing Director of Target Energy Limited, who is a member of the Society of Exploration Geophysicists and has over 30 years experience in the sector. He consents to the reporting of that information in the form and context in which it appears.

Contact Information

  • Media Inquiries:
    USA
    Bradley Holmes
    Target Investor Relations (Houston)
    +1 713 304 6962 cell
    +1 713 654 4009 direct

    Laurence Roe
    Target Energy
    +1 713 275 9800 direct

    Australia
    Ross Dinsdale
    Business Development Manager (Perth)
    +61 429 702 970 cell
    +61 8 9476 9000 direct