AXP Energy Faces Cash Flow Challenges Despite New Gas-to-Power Deal

Production and Revenue Dynamics

AXP Energy Limited (ASX: AXP) has reported a 12% decline in gross oil production for the December 2024 quarter, falling to 2,703 barrels from 3,077 barrels in the prior period. This reduction was primarily due to the Pathfinder #2 well being offline during adjacent development and equipment testing phases. Despite this, revenue from the company’s 100%-owned Colorado operations increased by 9% to $136,285, reflecting higher sales volumes that offset the impact of lower realised oil prices.

Strategic Shift to Gas-to-Power

In a significant strategic pivot, AXP Energy has signed a binding Joint Development Agreement (JDA) with Colorado-based Blackhart Technologies. This three-year agreement commits to gas sales and energy conversion, with an option for annual renewal. The gas-to-power initiative aims to repurpose stranded gas from existing shut-in wells to generate power, targeting data centre operators focused on high-performance computing applications such as AI and cryptocurrency mining.

The Pathfinder Mining site, AXP’s first gas-to-power operation, is fully set up with 1.5MW of power generation capacity and 545 configured Antminers, pending final permitting. The company expects to bring this system online by early February, marking a critical test case for scaling operations in partnership with Blackhart.

Development and Expansion Plans

Beyond Pathfinder, AXP is advancing development at two additional sites, JW Powell and Kelsey Court, with plans underway for an additional 25MW of power generation capacity. The gas supply for these projects will come from wells in the Niobrara and Pierre formations, many of which have been offline since 2018. The conversion of gas to power is expected to unlock new revenue streams and improve the economics of the Florence field, which historically struggled due to lack of a gas sales channel.

Financial Position and Outlook

AXP ended the quarter with $177,704 in cash and cash equivalents, down from $853,192 in the previous quarter. The company reported an operating cash outflow of $398,405, an improvement from the prior quarter’s $634,236 outflow. Importantly, AXP expects to receive approximately $320,000 in bond returns following lease transfers to Mountain V Oil & Gas, alongside federal and state tax refunds totaling around $369,000. These inflows are anticipated to support the company’s near-term liquidity and operational ramp-up.

Chairman Sam Jarvis highlighted the growing US energy demand driven by AI and cryptocurrency adoption, positioning the Florence field as a potential major power hub in Southern Colorado. He emphasized that the gas-to-power conversion strategy fundamentally changes the field’s economics and provides a viable sales channel, setting the stage for a significant scale-up of operations.

Risks and Considerations

While the gas-to-power initiative offers promising growth prospects, the decline in oil production and reliance on anticipated refunds and bond returns introduce some financial uncertainty. The success of the Pathfinder Mining site as a pilot will be closely watched as a barometer for the scalability of AXP’s new business model. Additionally, the company is currently in a trading halt pending a share placement announcement, which will be critical for funding ongoing development activities.