AXP Energy : 2022 Quarterly Report - Dec 31 2021

For personal use only

ASX ANNOUNCEMENT

28 JANUARY 2022

QUARTERLY ACTIVITIES REPORT

AXP Energy Limited (ASX: AXP, OTC US: AUNXF),('AXP', 'Company') provides this summary of activities for the quarter ended 31 December 2021.

As the Company now reports in USD, all figures are in USD unless stated otherwise.

HIGHLIGHTS

• Record quarterly net revenue of $4,580,652 - up 11% on previous quarter ($4,115,578);
• Net customers receipts were $4,617,874, a 25% increase on the prior quarter ($3,697,811);
• Despite some large one-off payments and a modest second quarter cash operating loss of $160K, AXP delivered positive operating cash flow for the first half year of $694K;
• Barrels of oil sold was 26,385 BBL vs. 28,389 BBL in prior quarter (7% decrease). Oil sale volumes were lower however oil revenue remained stable due to price strength;
• Natural gas ('gas') and natural gas liquids ('NGLs') were down on the previous quarter with gas sales of 697 MMcf (prior quarter: 774 MMcf) and NGLs sales of 26,822 BBL (prior quarter: 31,202 BBL);
• Unsold oil inventory held in collection tanks at quarter end remains strong at 17,762 BBL as the Company moderated its inventory sell-down (previous quarter end: 18,518 BBL);
• Cash and cash equivalents of $2,709,422, which excludes the value of unsold oil inventory was moderately down by $224,327 on the previous quarter, despite ~$920K in one-off payments made during the quarter including the final $450,000 payment to close the Trey asset acquisition.

QUARTERLY NET REVENUE - BY HYDROCARBON

AXP Energy Limited | ABN 98 114 198 471

www.axpenergy.com

QUARTERLY ACTIVITIES REPORT

For personal use only

COMMENT

Chairman Simon Johnson commented: "Despite the continued downstream outages experienced by our third-party gas processor, we still delivered record revenue for the quarter. This is all the more significant given the onset of winter which sees production levels generally lower in the second quarter. Whilst pricing has been favourable, our team has done well to bring on new production which is contributing to growth. A true measure of AXP's performance, and validation that we are incrementally delivering gains and enhancing performance, is the positive operating cash flow of almost US$700,000 that we delivered in the first half."

"A major focus for the team in the second half is ramping up field development activities to grow oil production through our newly formed drilling division and capitalising on the strengthening price of oil, and also advancing operations with Elite Mining which have been slower to materialise than we hoped given permitting issues which we are working on resolving. Both are future growth drivers for AXP, as is the ongoing well workover program which is ongoing across our leases. Addressing downstream outages with our gas processor is also critical area of focus. We are pleased with today's result, our third consecutive quarter of growth, and as we have previously stated, we are continually identifying new opportunities to enhance production and revenue and improve margins. AXP is well-set for the next two quarters and beyond."

FINANCIAL & CORPORATE REVIEW

Net revenue (revenue after royalties) and receipts from customers again grew strongly through the quarter despite continued downstream outages in the Appalachian Basin and Illinois Basin business units which resulted in lower overall production compared with the previous. Outages were experienced in 17 of the 92 days in the quarter. As well, the December quarter is traditionally a more challenging production quarter given the North American winter hampers production and oil collection efforts. As such, the top line growth is pleasing.

Whilst the continued revenue growth was primarily due to stronger hydrocarbon pricing, prudent management and re-negotiation of several of our offtake agreements contributed also, with realised pricing up over 20% on the prior quarter.

The Company was marginally cash flow negative for the December quarter to the tune of $224K however around $920K in one-off payments were incurred. These included the final $450K payment for closing the Trey asset acquisition, as well as a further $171K in acquisition accounting and auditing and $300K for regulatory costs, the legacy payment plans and other miscellaneous one-off payments.

The Company will now accelerate oil production increases with the implementation of a field development plan which will commence in parallel with the workover program that has been in place since acquisition. Commencing early February, development operations will include the completion of two drilled but uncompleted wells (DUCs) which have recently been identified (refer further details below).

AXP Energy Limited | ABN 98 114 198 471

www.axpenergy.com

QUARTERLY ACTIVITIES REPORT

For personal use only

Cash position: AXP currently has cash on hand of $2,709,422 (previous quarter end: $2,933,749). The Company also holds almost 18,000 barrels of unsold oil inventory in its collection tanks. With the continued growth in revenue, the Company remains well-funded and has no need to raise additional capital to fund existing operations.

Revenue split: Gas and NGLs represent 70% of quarterly revenue. Oil sales as a percentage of total revenue grew during the quarter but were fractionally lower than in the previous quarter (refer page 1 and Charts 1& 2).

NET MONTHLY REVENUE [$'000]

QUARTERLY NET REVENUE SPLIT

CHART 2

CHART 3

PRODUCTION AND OPERATIONS OVERVIEW

Even with the North American winter in full force, coupled with downstream outages, oil production increased a modest 513 BBL for the quarter.

However, for the 3rd quarter in a row, gross gas and oil production in the Appalachian Basin was again curtailed by a number of downstream events beyond the company's control, with gas and NGL production falling quarter on quarter by 4% and 2%, respectively. Resolving the downstream issue is now a key focus of the Board and Management.

The first power generation site with Elite mining in Colorado has been delayed pending final regulatory approvals as the scope of the operation has increased effecting the layout of the location. New engineering design and site layouts have been provided and are currently under consideration by the regulator.

Although the initial Colorado site was a prerequisite for moving forward with additional sites, due to the regulatory process, the Company is actively pursuing a second site to be located in the state of Kentucky.

With respect to the Elite mining business, revenue generated for the quarter was nil, the amount of government grants and tax incentives accrued during the quarter was nil, expenditure for the quarter (including development, operations, staff & administrative &

AXP Energy Limited | ABN 98 114 198 471

www.axpenergy.com

QUARTERLY ACTIVITIES REPORT

For personal use only

corporate expenditure) was $7,177, capital & investment expenditure incurred was $29,964 and other income generated/expenditure incurred was nil.

Consolidation of operations has been a primary focus of the operations team during the quarter. An appropriate management structure and field personnel team have been put in place to complete the transition of having all wells in the Illinois Basin rolled up into AXP's operations function. The Illinois Basin properties span 3 different states within a footprint of approximately 2,500km2.

PRODUCTION AND DEVELOPMENT ACTIVITY

Production and development work undertaken during the period included 9 well workovers adding a total production of 58 Mcf/d of gas, 112 USG of NGL's and 26.25 BBL/d. The team spent 66 days swabbing wells recovering a total 808 BBL to restore production on 20 wells totalling a further 553Mcf/d, 1106 USG/d of NGLs and 4 BBL/d. Total additional production brought on this quarter was 173 BOE/d.

The majority of the pipeline has been constructed to complete the Kay Jay pipeline project, however, the operations team encountered a right of way issue that has put the project on hold pending resolution. Twenty-two of the thirty-one wells in the field have been brought back online representing a measured production increase of ~500 Mcf/d.

The AXP oil transport team hauled 12,100 barrels of oil for the quarter representing 45% of the total oil sold. The moderate investment in haulage vehicles has added flexibility to the Company's sales channels and reduced oil transport costs significantly.

EXPLORATION & DEVELOPMENT ACTIVITY

An 8 well drilling program focusing primarily on oil production was formulated during the quarter. In the process of identifying the new drilling locations, the team identified 6 well locations that had been drilled but uncompleted (DUCs). These well locations were drilled in 2007 just prior to the GFC and have not been revisited since. The DUCs have been prioritized above the new planned drilling locations as the mechanical risk and associated costs have already been realized. The engineering for the completion work on 2 of the DUCs is complete and the first completion is scheduled for early February.

HEALTH, SAFETY & ENVIRONMENT

No Lost Time Injuries, Recordable Injuries or Reportable Loss of Containment incidents were recorded in the quarter.

TENEMENT SCHEDULE

During the quarter, AXP closed on the Trey transaction, bringing in an additional 4,600 acres and 119 wells to the Company's Illinois Basin portfolio.

AXP's leases held at the end of the quarter are available by clicking the following link:

https://fremontpetroleum.com/wp-content/uploads/2021/04/FPL-TenementsList-4-20-2021.pdf

There were no changes to farm-in or farm-out arrangements during the period.

AXP Energy Limited | ABN 98 114 198 471

www.axpenergy.com

QUARTERLY ACTIVITIES REPORT

PAYMENTS TO RELATED PARTIES

For personal use only

Outstanding Directors Fees of $4,616 were paid in the quarter.

SECURITIES ISSUED

During the quarter the Company received A$450,000 from the exercise of 100% of the 30 November 2021 unlisted Options. A further A$441,000 was received from the exercise of 88,221,001 of the 30 April 2023 A$0.005 unlisted Options which represents the exercise of 29.4% of this Option class.

As at 31 December 2021 there are outstanding:

• 211,778,999 30 April 2023 A$0.005 unlisted Options;
• 95,000,000 30 October 2023 A$0.005 unlisted Options.

EVENTS SUBSEQUENT TO THE END OF THE QUARTER

In early January, the Company made the $50,000 payment to close on the acquisition of the 50% interest in the Kentucky JV. These tenements are now included in the above tenement listing.

PROPOSED WEBINAR

The Company will hold a webinar mid next week to provide further commentary to the quarterly report. An invitation will be lodged on ASX early next week with the proposed date and time.

This announcement has been authorised by the Board of AXP Energy Limited.

END

FURTHER INFORMATION

Simon Johnson, Non-Executive Chairman: 0417 478 818

Sam Jarvis, Non-Executive Director: 0418 165 686

Robert Lees, Company Secretary: 0411 494 406

ABOUT AXP ENERGY LIMITED

AXP ENERGY Limited (ASX: AXP) (formerly Fremont Petroleum Corporation Limited) is an oil & gas production and development company with operations in Colorado, Illinois, Kentucky, Tennessee and Virginia. AXP's focus is to aggressively grow daily production by improving current asset performance and opportunistically acquiring onshore USA oil & gas assets with the following characteristics: producing conventional oil & gas wells; production that can be enhanced through low-cost field operations and workovers; leases which are held by production and which do not require ongoing drilling commitments; and economies of scale which can be achieved by acquiring and carrying out similar enhancement strategies on contiguous or nearby fields with similar characteristics.

AXP Energy Limited | ABN 98 114 198 471

www.axpenergy.com