ADVANCE
ENERGY LIMITED
ACN 111 823 762
QUARTERLY
REPORT
30 SEPTEMBER 2009
ADVANCE ENERGY LIMITED
QUARTERLY REPORT 30 SEPTEMBER 2009
ADVANCE ENERGY LIMITED
ASX CODE: AVD www.advanceenergyltd.com.au
pg. 1
OVERVIEW
Advance Energy Limited, ("Advance" or "The Company") is pleased to present the following
highlights for the quarter ended 30 September 2009:
·
$7.75m in new funding was invested in the Company through the issue of $2.5m in equity and
$5.25m in unlisted convertible notes.
·
Execution of a Purchase and Sale Agreement to acquire a controlling interest in the ten well
Martin West Project. The project had previously reported revenue of US$54,000 net to Advance
with significant potential for short and medium term enhancement. In the last month it has
reported US$70,000 in revenue net to Advance, due in part to the increase in oil and gas prices.
·
The Company sold its interests in the Mother Lode II Project for US$2.015m.
·
Minor enhancement activities including an acid clean up for Hull#1 & 2 and Francis#1 wells.
·
Appointment of Paul Berresford as a Non-Executive Director of the Company.
OPERATIONS
General
During the Quarter the Company determined the pricing for goods and services had fallen in line
with current oil and gas prices and therefore recommenced development activities on these assets.
The company is currently preparing for an aggressive work over program for its Motherlode
projects that will start in the 4
th
Quarter of 2009.
Mother Lode Phase 1 Project
During the Quarter the Hull #1 and Hull# 2 were acidised and new pumps were run in both wells.
This treatment was successful in doubling the production from this unit. At the time of this report,
four of the five wells that make up this project were online and producing a very steady 51 BOEPD
net to the Company. The Cazares #2 is currently shut in and will be recompleted in the prolific
Wolfcamp line in the 4
th
quarter
Mother Lode Phase II Project
The Company's interests in the Mother Lode II project were sold with an effective date of 30 June
2009. Consequently, no revenue was attributable for the Quarter. Further information about the
project is shown below.
Mother Lode Phase III Project
No development on the Mother Lode III project was undertaken during the quarter. The North
Hampton and Greene prospects are currently tabled to be drilled in the first half of 2010. As per
prior announcements, the two prospects could yield up to 22 drillable wells and could have net 2P
reserves as high as 1,105 MBOE.
Possum Kingdom Project
Production from the Possum Kingdom project in Palo Pinto County was increased during the
quarter by performing a workover on the previously temporarily abandoned Francis #1 well.
Production net to Advance at the end of the quarter was in excess of 330 MCFEPD.
The Company is planning the re-entry of an existing wellbore on its PK Gragg lease to test a
shallow oil target at 2,000 ft. Should this target not be capable of producing oil or gas, the well will
ADVANCE ENERGY LIMITED
QUARTERLY REPORT 30 SEPTEMBER 2009
ADVANCE ENERGY LIMITED
ASX CODE: AVD www.advanceenergyltd.com.au
pg. 2
be converted into a saltwater disposal well that will greatly enhance the economics of the Francis
#1 well that currently makes 13 BOPD and 100 BWPD.
Development Activities
Advance believes that service costs have bottomed out and as mentioned above are planning
numerous workovers designed to increase and normalise the production from its existing assets.
The company continues to evaluate a number of acquisition opportunities, which can now be
undertaken with convertible note funding.
ACQUISITIONS AND DIVESTMENTS
Acquisition of Martin West Project
Advance executed a Purchase and Sale Agreement to acquire an operating interest in the Martin
West Project in Martin County, Texas for US$2.625m. The project covers 1,600 acres and includes
ten producing wells, ten behind pipe development prospects and ten proved undeveloped (PUD)
prospects.
At acquisition, the project was producing 48 BOEPD net to Advance and operating cash flows of
approximately US$54,000 per month. These cash flows to Advance have increased to US$70,000
per month in the last month due in part to the rise in oil and gas prices. Hibernia Resources,
Advance's Permian operator, intends undertaking a production enhancement and a lease
operating expense reduction campaign to overcome prior operator neglect, and which will further
increase production and profitability.
Advance intends commencing the development of the ten behind pipe prospects in February 2010
with the aim of achieving initial production of 11.5 BOEPD per well, over and above current
production levels.
The project was acquired for approximately US$54,000 per BOEPD. Recent comparable
transactions in the Permian Basin, including the sale of the Mother Lode II Project (see below)
have been at over US$80,000 per BOEPD.
Sale of Mother Lode II Project
During the quarter, Advance completed the sale of its interests in the Mother Lode II project for
US$2.015m. The Mother Lode II project is operated by Endeavor Energy LLC and, as a minority
interest, Advance had little influence over the timing and extent of development activities.
The Mother Lode II Project was identified as a result of the 250 square miles of 3D seismic
acquired as part of the Mother Lode Phase I project. Advance acquired an initial 12.5% working
interest in six producing wells and has since participated in the drilling of an additional six wells.
Since acquisition, the project delivered net revenues of US$1.77m. Approximately 36% of the
$2.7m acquisition and development cost was funded by debt giving a project IRR of approximately
25%.
$1m of the net proceeds were used to reduce the Sterling Bank debt to US$3.68m.
RESERVES
In October Advance published a Corporate Update that included a summary of the Company's
reserves and resources post the Martin West and Mother Lode II transactions as detailed below.
ADVANCE ENERGY LIMITED
QUARTERLY REPORT 30 SEPTEMBER 2009
ADVANCE ENERGY LIMITED
ASX CODE: AVD www.advanceenergyltd.com.au
pg. 3
Category
Oil (MBO)
Gas (MMCF)
Proved Producing
355.90
1,807.20
Proved Behind Pipe/ Non Producing
331.40
805.20
Proved Undeveloped
639.49
1,837.30
Total Proved (1P)
1,326.30
4,449.70
Probable 670.70
1,436.80
Total Proved and Probable (2P)
2,087.49
5,886.50
Possible 118.40
516.80
Total Proved Probable and Possible (3P)
2,205.89
6,403.30
CORPORATE
Convertible Note and Equity Funding
The Company completed the placement of 31,250,000 shares at $0.08 per share to raise
$2,500,000 before costs.
On execution of the Purchase and Sale Agreement to acquire an operating interest in the Martin
West Project, Advance completed the issue of 5,000,000 $1.00 unlisted convertible notes to raise
$5,000,000 before costs. Convertible Notes are issued for a three-year term, pay 12% interest
quarterly in arrears and are convertible at the greater of $0.08 or 70% of the volume weighted
average price of shares traded in the thirty days immediately prior to conversion (30 day VWAP).
During the quarter, the Company also completed the placement of $250,000 unlisted convertible
notes. These notes were issued for a term of 18 months and on similar interest and conversion
terms to the above notes.
Issue of Listed Convertible Notes
The Company issued a Notice of Meeting for a General Meeting for shareholders to approve the
issue of up to 10,000,000 $1.00 unlisted convertible notes and up to 20,000,000 listed convertible
notes. The meeting was held on 13
th
October 2009 and all resolutions were passed.
Off Market Takeover of Target Energy Ltd
The off market takeover of Target Energy Ltd by Blaze Asset Pty Ltd expired on 17
th
July 2009. At
that time, Blaze had received acceptances from 5.83% of Target Energy Ltd shareholders and has
issued 5,354,098 shares.
Appointment of Paul Berresford to the Board
Mr Paul Berresford was appointed to the Board as a Non-Executive Director on 14
th
September
2009. Mr Berresford has over 25 years experience in Public Practice and the Financial Services
Industry. He is currently a Director of Optimus Financial Group Pty Ltd which undertook a nine-
month due diligence on Advance Energy Ltd culminating in the placement of $2.5m in equity and
$5m in unlisted convertible notes by Optimus and its clients.
ADVANCE ENERGY LIMITED
QUARTERLY REPORT 30 SEPTEMBER 2009
ADVANCE ENERGY LIMITED
ASX CODE: AVD www.advanceenergyltd.com.au
pg. 4
For further information contact:
Mr Anthony Short (Managing Director) or Mr David Ballantyne (Company Secretary)
Telephone: 08 9486 1122
Facsimile: 08 9486 1011
The technical information in this report has been provided by Embry Canterbury, BSc (Petroleum
Engineering), SPE. Mr Canterbury has more than 13 years of relevant experience in the practice of
petroleum engineering and operations. Mr Canterbury consents to the inclusion in this report of the
information in the form and context in which it appears.
Advance Energy Limited is focused on the acquisition and development of oil and gas producing assets in Texas USA.
The company aims to acquire assets with a combination of debt and equity that have current production and cash flow
and to enhance production and cash flow through the further development of these assets. Once a property has reached
its full productive potential and/or has achieved economic payout to Advance Energy, the Company looks to on sell all or
part of its interest. It is the aim of the Company to develop a portfolio of assets which will be developed and traded to
maximise returns on funds invested.
Appendix 5B
Mining exploration entity quarterly report
+ See chapter 19 for defined terms.
30/9/2001
Appendix 5B Page 1
Rule 5.3
Appendix 5B
Mining exploration entity quarterly report
Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001.
Name of entity
Advance Energy Limited
ACN
Quarter ended ("current quarter")
111 823 762
30 September 2009
Consolidated statement of cash flows
Cash flows related to operating activities
Current quarter
$A'000
Year to date
(9 months)
$A'000
1.1
Receipts from product sales and related debtors
194
1,939
1.2 Payments
for (a) exploration and
evaluation
(b)
development
(c)
production
(d)
administration
(14)
(84)
(925)
(269)
(1,181)
(1,086)
1.3 Dividends
received
1.4
Interest and other items of a similar nature
received
4
7
1.5
Interest and other costs of finance paid
(177)
(758)
1.6 Income
taxes
paid
1.7
Other (provide details if material)
Net Operating Cash Flows
(1,003)
(1,349)
Cash flows related to investing activities
1.8
Payment for purchases of: (a)prospects
(b)equity
investments
(c)other
fixed
assets
1.9
Proceeds from sale of:
(a)prospects
(b)equity
investments
(c)other
fixed
assets
2,309
2,309
1.10
Loans to other entities
(529)
(529)
1.11
Loans repaid by other entities
1.12
Other (provide details if material) Asset Sale
Costs
(441)
(736)
Net investing cash flows
1,339
1,044
1.13 Total operating and investing cash flows
(carried forward)
336
(305)
Appendix 5B
Mining exploration entity quarterly report
+ See chapter 19 for defined terms.
Appendix 5B Page 2
30/9/2001
1.13 Total operating and investing cash flows
(brought forward)
336
(305)
Cash flows related to financing activities
1.14
Proceeds from issues of shares, options, etc.
2,500
2,872
1.15
Proceeds from sale of forfeited shares
1.16
Proceeds from borrowings
5,250
5,250
1.17 Repayment
of
borrowings
(2,004)
(2,665)
1.18 Dividends
paid
1.19
Other : Reduction MTM
Other Capital Raising Costs
(328)
(428)
(1,413)
(540)
Net financing cash flows
4,990
3,504
Net increase (decrease) in cash held
5,326
3,199
1.20
Cash at beginning of quarter/year to date
219
2,448
1.21
Exchange rate adjustments to item 1.20
(140)
(242)
1.22
Cash at end of quarter
5,405
5,405
Payments to directors of the entity and associates of the directors
Payments to related entities of the entity and associates of the related entities
Current quarter
$A'000
1.23
Aggregate amount of payments to the parties included in item 1.2
141
1.24
Aggregate amount of loans to the parties included in item 1.10
1.25
Explanation necessary for an understanding of the transactions
.
Non-cash financing and investing activities
2.1
Details of financing and investing transactions which have had a material effect on consolidated
assets and liabilities but did not involve cash flows
During the period the Company issued 6,319,500 shares for each share received by the Company's
Joint Venture Company Blaze Asset, in the take over attempt of Target Energy Limited as per the
take over documents previously submitted.
2.2
Details of outlays made by other entities to establish or increase their share in projects in which the
reporting entity has an interest
N/A
Appendix 5B
Mining exploration entity quarterly report
+ See chapter 19 for defined terms.
30/9/2001
Appendix 5B Page 3
Financing facilities available
Add notes as necessary for an understanding of the position.
Amount
available
$A'000
Amount used
$A'000
3.1 Loan
facilities
2,900 2,900
3.2 Credit
standby
arrangements - line of credit
US$40 mil
*
US$3.68 mil
*
This facility is held with Sterling Bank in the US. It bears interest at US Prime plus 1% and is secured
against the Group's oil and gas properties. The facility was renewed in March 2009 for a further three
year period.
Estimated cash outflows for next quarter
$A'000
4.1
Exploration and evaluation
-
4.2 Development
200
Total
200
Reconciliation of cash
Reconciliation of cash at the end of the quarter (as
shown in the consolidated statement of cash flows) to
the related items in the accounts is as follows.
Current quarter
$A'000
Previous quarter
$A'000
5.1
Cash on hand and at bank
5,374
146
5.2 Deposits
at
call
1
43
5.3 Bank
overdraft
5.4
Other (provide details): Security deposit
30
30
Total: cash at end of quarter (item 1.22)
5,405
219
Changes in interests in mining tenements
Tenement reference
Nature of interest
(note (2))
Interest at
beginning
of quarter
Interest at
end of
quarter
6.1
Interests in mining
tenements relinquished,
reduced or lapsed
Mother Load 2
Working Interest
12.5%
-
6.2
Interests in mining
tenements acquired or
increased
Appendix 5B
Mining exploration entity quarterly report
+ See chapter 19 for defined terms.
Appendix 5B Page 4
30/9/2001
Issued and quoted securities at end of current quarter
Description includes rate of interest and any redemption or conversion rights together with prices and dates.
Total number
Number quoted
Issue price per
security (see note
3) (cents)
Amount paid up per
security (see note 3)
(cents)
7.1
Preference
+
securities
(description)
9 unquoted
7.2 Changes
during
quarter
(a) Increases through
issues
(b) Decreases
through returns of
capital, buy-backs,
redemptions
7.3
+
Ordinary securities
156,367,722
156,367,722
Fully paid
7.4 Changes
during
quarter
(a) Increases through
issues
(b) Decreases
through returns of
capital, buy-backs
37,569,500
37,569,500
Fully Paid
7.5
+
Convertible debt
securities
(description)
9,550,000
Unquoted, 11%
and 12% coupon,
18 month terms,
various expiry
dates
7.6 Changes
during
quarter
(a) Increases through
issues
(b) Decreases
through securities
matured, converted
-
7.7
Options (description
and conversion
factor)
19,350,000
-
Exercise price
various
Expiry date
various
7.8
Issued during quarter
7.9 Exercised
during
quarter
7.10 Expired
during
quarter
7.11
Debentures
(totals only)
7.12
Unsecured notes
(totals only)
Appendix 5B
Mining exploration entity quarterly report
+ See chapter 19 for defined terms.
30/9/2001
Appendix 5B Page 5
Compliance statement
1
This statement has been prepared under accounting policies which comply with
accounting standards as defined in the Corporations Act
or other standards acceptable
to ASX (see note 5).
2
This statement does /does not*
(delete one)
give a true and fair view of the matters
disclosed.
Sign here:
Date: ...30 October 2009......
(Director/Company secretary)
Print name:
David Ballantyne..........................
Notes
1
The quarterly report provides a basis for informing the market how the entity's
activities have been financed for the past quarter and the effect on its cash position.
An entity wanting to disclose additional information is encouraged to do so, in a note
or notes attached to this report.
2
The "Nature of interest" (items 6.1 and 6.2) includes options in respect of interests in
mining tenements acquired, exercised or lapsed during the reporting period. If the
entity is involved in a joint venture agreement and there are conditions precedent
which will change its percentage interest in a mining tenement, it should disclose the
change of percentage interest and conditions precedent in the list required for items
6.1 and 6.2.
3
Issued and quoted securities The issue price and amount paid up is not required in
items 7.1 and 7.3 for fully paid securities
.
4
The definitions in, and provisions of, AASB 1022: Accounting for Extractive
Industries and AASB 1026: Statement of Cash Flows apply to this report.
5
Accounting Standards ASX will accept, for example, the use of International
Accounting Standards for foreign entities. If the standards used do not address a topic,
the Australian standard on that topic (if any) must be complied with.
== == == == ==
Document Outline
- 20091030 Activities report for quarter ended 30 Sep 2009.pdf
- 20091030 App 5b Sept 2009
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