IPO Watch: This gas play is set to make waves in the Beetaloo
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One of Australia’s largest initial public offerings for an oil and gas explorer is poised to close today and there are some very good reasons why this company has created such a buzz.
Tamboran Resources, which will trade under the ticker TBN, has already raised $60m through the institutional offer to clients and is seeking a further $6m under its retail offer priced at 40c per share that will close on 18 June 2021.
Should the full amount be raised, the company will list on the ASX with a market capitalisation of about $266m, making one of the largest E&P IPOs in nearly a decade.
So just what makes Tamboran tick and what will the company do with its funds?
Tamboran is focused on developing unconventional gas resources – specifically in the form of shale gas – in the Northern Territory’s Beetaloo sub-basin, which has been recognised by the Australian federal government as one of five areas that will support its gas-led recovery plans.
The company’s key assets are its 100% stake in EP136 and its 25% stake in the adjacent EP161, which is where the story gets interesting.
Gas major Santos (ASX:STO) holds the remaining 75% of EP161 and has already spudded the first of two horizontal wells that it is drilling back to back.
Managing director Joel Riddle is understandably excited about these wells, telling Stockhead that first flow test results are expected in September.
“So, within three months of our IPO, we will be reporting big value catalysts for the company,” he noted.
Following the drilling and flow testing of Tanumbirini-2H and Tanumbirini-3H, Tamboran then expects to shoot 2D seismic over its wholly-owned EP136 before drilling the Maverick-1H horizontal well in the first half of 2022.
This is unlikely to present any unwelcome surprises as shale formations tend to be very consistent across their extent and any success of the Tanumbirini wells are likely to be mirrored at Maverick.
And if that was not enough, Origin Energy (ASX:ORG) is also drilling a well on the other side of EP136 that will further de-risk the company’s well.
“Each of these wells sort of surrounds our EP136 and that all sets up for the drilling of Maverick-1 in the first half of 2022.”
About 80 per cent of the IPO funds are expected to be pumped into this exploration work, adding to the roughly $140m that has already gone into the acreage.
It’s big money going into the ground, but there are also some big rewards.
Riddle notes that once the two Santos wells and Tamboran’s Maverick well have been flow tested, the company will return to EP136 and drill a further three horizontal wells, which will get it to a sanction point on a pilot development.
“At that point, we could book proved and probable (2P) reserves of about 2 trillion cubic feet of gas on EP136,” he told Stockhead.
Even assuming a modest $1 per thousand cubic feet of gas, that would value the gas reserves at about $2bn, or more than seven times the company’s expected market capitalisation on listing.
By way of comparison, gas prices at the Wallumbilla hub in April averaged $6.97 per gigajoule (roughly 948 cubic feet) of gas.
And that’s just the beginning.
Tamboran will then be able to leverage its joint venture with Jemena, the second largest midstream company in Australia with an existing pipeline connecting the Northern Territory to the East Coast gas market, through its first right of refusal on 100 petajoules per day into that pipeline to commercialise EP136 in 2025.
This also falls neatly in line with the government’s timeline for connecting Beetaloo gas into the energy market in 2025.
“We will then be looking at a full field development and working with Jemena to construct a 36-inch pipeline between Darwin and Wallumbilla,” Riddle explained.
“This will give the company the ability to produce up to 500PJ/d, either north to feed into one of two LNG plants that are operated by Santos and Inpex, or east where there’s three LNG plants, all projected to be short on gas plus the domestic market.
“That’s six demand centres that we could target in a full field development.”
Successful development is also expected to bring down the cost of drilling horizontal wells in the Beetaloo, which is currently priced around the $30m mark.
“There’s a pathway we’re trying to get these costs down by half in the next 24 months, so we’re targeting getting these well costs down to $15m by 2023-24,” he added.
“It’s a great development opportunity and once you commit, which is what our business plan is focused on, the well costs will come down and the cost structures will start to get more in line with US standards now.”
And that’s not all.
Tamboran is well aware of the push towards net zero emissions and is keen to develop its project to meet this trend from ground up.
“The gas that we will be producing out of the Beetaloo is just 3% CO2, it is very low compared to other onshore and offshore gas developments, which average about 15% or so,” Riddle noted.
“Our focus is to offset that 3% through integration of renewables, carbon capture and storage, and buying carbon offsets and incorporating that into our development cost.
“Because it is so low, it’s actually economic to buy the carbon offsets so that when we develop, we are developing a net zero gas stream and that’s obviously very topical.
“We’re also not dealing with a legacy asset that may have higher carbon footprints, so we can say from inception that we’ve always been net zero carbon, which I think really differentiates the company quite a bit.”
Riddle also touched on the company’s operating team, which was recruited from Pioneer Natural Resources – one of the top shale operators in the US.
“The expertise that we’re bringing from the US is not just influencing Santos but it’s really to ensure that we can operate on EP136 in a way that you would see operators performing in the Permian and the Marcellus, the best shale basins in the world,” he explained.
“The learning curves that have been developed in the Permian, we’re going to be adopting from day one.
“These are world class people using the latest technology, so a real focus for the company is to make sure that we’re designing seventh generation shale wells, not starting out with generation one, which is really one of the keys to unlocking the value in the Beetaloo.”
He also highlighted the government’s support for gas development in the Beetaloo sub-basin, noting that it was the most unprecedented level of support that he had ever seen in his 26 years in the oil and gas industry.
“They’ve allocated $50m of incentives that companies can offset their drilling costs. That’s $7.5m per well, that we can use in these grants to offset our costs.”