Special Report: Talon is moving to position itself as a leader in the emerging Mongolian coal bed methane (CBM) industry with the securing of an option to take a stake in a soon-to-be-granted production sharing agreement (PSA).

Talon Petroleum (ASX:TPD) has inked a lucrative deal with Telmen Resource JSC to earn a 33 per cent stake in a soon-to-be-granted PSA over the Gurvantes XXXV Field, located onshore Mongolia.

The PSA covers a significant area of 8,400sqkm and is in what is considered one of the most prospective basins for CBM globally.

Gurvantes XXXV is situated less than 20km from the Chinese-Mongolian border and close to the extensive Northern China gas transmission and distribution network.

Another plus for the project is it is the closest of Mongolia’s CBM projects to China’s West-East Gas Pipeline. It is also proximate to several large-scale mining operations with high energy needs.

This means Gurvantes XXXV is ideally placed for future gas sales to satisfy both local Mongolian, and Chinese, energy requirements.

Telmen, which holds a CBM prospecting contract over the area of the proposed PSA, has completed an initial prospecting work program to better understand its prospectivity.

The company has also completed negotiations with the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) on the commercial terms of the PSA, which is expected to be granted in the next few months.

Talon says Gurvantes XXXV is a top tier exploration opportunity in a world-class CBM basin.

“This is one of the best CBM/CSG opportunities I have seen and Gurvantes XXXV represents an exceptional opportunity for the company and its shareholders, with Talon to be at the forefront of what is an exciting emerging CBM industry in Mongolia,” managing director David Casey said.

“The farm-in provides additional portfolio and risk diversity as well as being complementary to Talon’s current onshore gas assets in the Perth Basin.”

Vote of confidence with strongly supported placement

Demonstrating investor confidence in Talon’s highly prospective portfolio of assets, the company has also received firm commitments for an oversubscribed $5m placement.

The additional cash will boost Talon’s coffers to $9.6m.

“The excellent support received for the placement is a vote of confidence in the strong potential of Talon’s highly prospective oil and gas exploration assets in both the Perth Basin and the UK North Sea to deliver significant value for investors,” Casey said.

Western Australia’s Perth Basin, in particular, is becoming one of Australia’s leading gas provinces thanks to scale changing recent exploration successes at Watsia, the ultra-deep West Erregulla discovery and the more recent Beharra Springs Deep-1 well.

It is this success that propelled the Perth Basin and the juniors active in the region, like Talon, onto the radar of investors. On the back of this investor interest, the Company has leveraged it’s technical expertise in the Basin to rapidly expand its portfolio there.  Talon now has rights over two existing gas discoveries requiring appraisal plus some chunky follow up exploration potential. It is already fully funded for its initial appraisal well drilling program in 2021.

The cash raised from the placement will be used to fund the Mongolian CBM farm-in as well as further exploration work on the PSA, including the drilling of multiple wells.

To acquire the 33 per cent stake, Talon will pay $US350,000 (AU$458,951) upfront plus up to $US1.5m in exploration costs on an initial work program.

Valuation upside potential

The Mongolian farm-in represents an attractive valuation upside potential when compared to other ASX-listed juniors with similar projects.

Elixir Energy (ASX:EXR), for example, owns a large 30,000sqkm CBM permit in southern Mongolia and has a market cap of $130m.

By comparison, Talon has a market cap of just $20m, but the Mongolian CBM PSA the company is looking to farm into is located closer to Chinese gas infrastructure.

Initial work program operations at Gurvantes XXXV are expected to begin as soon as possible following the granting of the PSA.

Work will include the drilling of at least four core holes where important data will be gathered to confirm gas contents and understand permeability — one of the last remaining technical parameters to be understood at the project.

Under the terms of the deal, Talon can choose to terminate the farm-in at the conclusion of the initial drilling program or commit to further operations.


This article was developed in collaboration with Talon Petroleum, a Stockhead advertiser at the time of publishing.


This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.