Transcription of Finance News Network Interview with Empire Energy Group Limited (ASX:EEG) Executive Chairman, Bruce McLeodLelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from oil and gas explorer and producer, Empire Energy Group Limited
(ASX:EEG) is its Executive Chairman, Bruce McLeod. Bruce welcome to FNN.
Bruce McLeod: Thank you for having me.
Lelde Smits: Empire’s strategy has previously been focussed on acquiring assets with upside potential. How is your strategy evolving?
Bruce McLeod: Our strategy is actually coming back to where we were two years ago. We were looking at assets that had a payback period of four to five years. Over the last two years that payback period was blown out due to new players coming into the market, to buy the assets that we were seeking. Some of those players are now moving back out of the market, and we’re seeing more assets come back. And, we believe our opportunities now will be where they were back in 2011 and 2012.
Lelde Smits: What is your current footprint across the US and could you outline the growth of existing assets?
Bruce McLeod: Our major oil assets are in what’s called the Mid Con and that’s the State of Kansas, and we produce there about 500 barrels of oil a day. That is our focus for growth at this point in time, because our focus is on oil. I think oil prices are stable at this level and perhaps will go higher with the political uncertainty in the world. Our other operations are in Appalachia, which includes New York State and Pennsylvania.
We’re producing the equivalent of about a thousand barrels of oil a day there. We are looking at small bolt on operations there to add to that production and to add pipelines for transportation, for our operations there. So generally across the board, we’re looking for larger acquisitions in the Mid Con and smaller bolt on acquisitions in Appalachia.
Lelde Smits: Fracking has come under threat with moratoriums being issued in some Australian States and New York State in the US. How does this threat impact Empire’s operations?
Bruce McLeod: Fracking moratorium in the US has a major impact on our operations. We have about 350,000 acres of shale in New York State. Moratorium was brought in place in 2010, about eight months after we bought the assets and it’s still in place. My belief is and I am optimistic about this, the fracking moratorium will be bought off at some stage, because at this stage for the State it’s creating a huge transfer of wealth from western New York, which is a poor part of the State anyway, through to Pennsylvania, Ohio and West Virginia. So hopefully in the short term, and by the short term perhaps early next year, we’ll see some positive signs coming in terms of fracking in the US - New York in particular.
Lelde Smits: So Bruce,if we can look closer at your share price now. Why do you believe the Company’s share price has underperformed in recent years?
Bruce McLeod: I think it’s for two reasons. One, that it’s declined and aligned pretty much with the resource market or certainly the small end of the resource market, whether it’s oil and gas commodities, bulk commodities, minerals and so on. And the other reason is that the projects that we’re working on have been a lot slower in coming to fruition, than we thought. And those projects are obviously our shale assets in New York State and secondly, what’s happening in the Northern Territory.
Both these things are a little bit out of our control. But in the Northern Territory, we certainly see things coming to fruition in terms of getting all the tenements granted, and we are starting a drilling program in three to four weeks. And in New York, we hope after the election of the Governor which is at the end of this year, we may see some changes in policy there.
Lelde Smits: Empire does not pay dividends but looking forward, would you consider selling assets and potentially distributing the profits to shareholders?
Bruce McLeod: No, the Company’s philosophy is not to sell assets to distribute the capital. The reason for that simply is that in the USA, it would be taxed at 35 per cent. And then the funds would be distributed to the parent company here in Australia, would be taxed again and then distributed to shareholders that would be franked. In the US, there is the opportunity if you sell assets and buy like assets within 180 days, there’s no tax on that capital gains at all. So the concept simply is if we sell assets, we buy similar oil and gas assets to save that tax payment.
Lelde Smits: Finally Bruce, where is Empire Energy Group looking for opportunities and how would you like to see the Company positioned by the end of the year?
Bruce McLeod: We’re specifically looking for opportunities in the Mid Con region. So, that’s Kansas Oklahoma, northern part of Texas, specifically oil type transactions; transactions that are bolt on, so we don’t need to build any type of new G&A operations. Where we want to be in terms of the Company - We’d certainly like to get two or three acquisitions completed by the end of the year.
There are a number of acquisitions that we are working on and in particular, there were two acquisitions that we worked on back in 2012 and 2013 that have actually come back to us. So we’re reviewing those again now, they weren’t sold. We stuck to our guidelines in terms of acquisition metrics, we didn’t overpay, they’ve come back and hopefully we can buy them by the end of this calendar year.
Lelde Smits: Bruce McLeod, thank you for the update from Empire Energy Group.
Bruce McLeod: Thank you.
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