Australian Oil Company (ASX:AOK) targets growth phase with Rec Board performance and asset review

Australian Oil Company (ASX:AOK) has released a detailed operational update outlining progress across its Californian assets and signalling its intent to pursue new growth opportunities.

Following the announcement on 14 July 2025, investors raised several key questions regarding the performance of producing wells, the status of historical exploration efforts, and the Company’s approach to leveraging improved market conditions.

Managing Director Kane Marshall addresses each topic in this Q&A, providing clear, fact based insights into the Company’s strategic direction and operational priorities.

Why are the Rec Board-7 and -8 wells now flowing better than before, and what steps are being taken to optimise production further?

“The Rec Board-7 and -8 gas wells are currently flowing unassisted at an average rate of 215 thousand standard cubic feet per day, which is a strong result.”

These wells were previously connected to a single large compressor, which, under the constraints of the new CRC pipeline system, was drawing them down too aggressively.

This led to unstable gas flows and slugging and once the wells were disconnected from that system and allowed to flow freely, production improved both in volume and stability.

To optimise performance further, the Company plans to install smaller, dedicated compressors on each well, which will allow for better management of pressure conditions and is likely to unlock additional production.

The larger compressor will be relocated to support gas flows at other leases where it may be better suited, and these initiatives form part of a broader review across the Company’s Californian portfolio aimed at capturing the benefits of rising gas prices.

What can you tell us about the Borba well, and why that discovery has been deemed uneconomic?

“The Borba 1-7 well was drilled and completed in the Kione Formation, and flow tested a small gas accumulation estimated between 0.5 and 1.5 billion cubic feet.”

Despite this discovery, several factors have rendered the project uneconomic.

The gas has a high nitrogen content at approximately 16 percent, which limits where it can be both processed and transported.

The closest suitable PG&E pipeline is more than five miles away, and the cost of constructing a new pipeline to that distance cannot be justified by the relatively small resource.

Additionally, the Kione Formation was damaged during drilling due to the use of a sub-optimal mud system.

Deeper prospective zones, including the Guinda Formation, could not be properly assessed due to incomplete logging and have since been plugged off and cannot be access by the Borba well.

With the original leases having expired in 2021, and no clear commercial development pathway under current conditions, the Company has determined that Borba is not material to its future plans.

What is the current status of the Dempsey well and associated lease, and is there any future potential for production?

“The Dempsey 1-15 well has experienced ongoing production challenges since it was drilled, primarily due to well integrity issues.”

The well is currently shut in.

Historical workovers have provided only short-lived flow, with water production consistently interrupting gas output after a few days.

A review of drilling records confirmed that the well was drilled in overbalanced conditions using high mud weights, and excessive cementing volumes may have also restricted formation deliverability.

The lease remains active under held-by-production status and was reduced in size to 150 acres back in 2019.

The Company is reviewing whether to retain it, with a reconciliation of royalty payments and operating costs now underway.

While the Dempsey specific lease is not currently considered material, the broader Dempsey Area, including other wells such as in the Stoney Creek area continues to be reviewed for future exploration or development potential.

What exploration or development opportunities is AOK currently focused on within its Californian leases?

Australian Oil is undertaking a detailed review of its lease portfolio in California to align with current and forecasted gas market conditions.

At Rec Board, the strong performance of wells 7 and 8 has encouraged the Company to evaluate step-out drilling nearby.

In the Malton Project, where royalties are being paid to maintain lease status, the Company is considering options to tie the VBC wells into another operator’s meter and is also assessing the potential to deepen those wells to reach untapped targets.

Across the Dempsey Area, additional seismic data is being acquired to reassess deeper zones and previously undrilled targets.

The Company is also evaluating new lease opportunities to expand its footprint and achieve greater economies of scale.

This strategy is supported by market fundamentals, with Canadian gas previously exported into California now redirected to LNG markets, creating a potential supply shortfall in the region and increasing the commercial attractiveness of local gas development.

What types of new venture opportunities is the Company looking at, and why is the timing favourable now?

“With the recent Settlement Agreement that improves our balance sheet, we are now in a stronger position to participate in this evolving deal flow.”

The Company is actively reviewing a range of new ventures in both domestic and international markets.

Licensing rounds are increasing across jurisdictions such as Africa, South America and Australasia, driven by government policies aimed at improving energy security and stimulating economic growth.

We are seeing proactive legislative changes in western economies such as New Zealand to support oil and gas exploration and development.

This trend coincides with a shift in strategy among major oil and gas companies, which are increasingly focusing on mergers and acquisitions rather than early-stage exploration.

This creates openings for well capitalised juniors to take the lead in underexplored regions.

With a strengthened balance sheet and improved operational clarity, Australian Oil is now better equipped to evaluate and pursue value accretive opportunities that align with its technical capabilities and market experience.

Looking Ahead: Strengthened Focus and Strategic Optionality

Australian Oil Company is entering a more decisive phase in its evolution, focused on leveraging its Californian production base while pursuing new ventures that reflect emerging global energy trends.

With free flowing gas now being delivered from Rec Board, technical reviews underway across multiple lease areas, and improved positioning to evaluate new deals, the Company is building a foundation for long-term growth.

As natural gas market dynamics shift in favour of local supply, and exploration incentives increase across international markets, Australian Oil is strategically placed to deliver value through both operational improvement and smart portfolio expansion.

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