Euroz tantalised by Talon’s coming cashflow and sizeable gas exploration upside
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With gas production imminent and plenty of exploration upside, Talon Energy has been ranked by broker Euroz as a speculative buy with a price target of $0.36, double its current $0.18 price.
Production from the Walyering gas field in the Perth Basin, which the company has a 45% interest in, is due to begin within weeks, delivering production of up to 33 terajoules per day.
For Talon Energy (ASX:TPD), this production is expected to deliver free cash flow of up to $30m per annum, enough to fund drilling and other exploration on its Perth Basin and Mongolian gas assets without turning to markets for capital.
These include its 25% stake in the Triangle Energy-operated L7 and EP 437 permits in the North Perth Basin, the wholly-owned Condor project in the Central Perth Basin as well as its one third interest in the Gurvantes XXXV coal seam gas project in Mongolia.
Euroz forecasts that Talon is worth quite a bit more than it is priced on the market right now, noting that while the upcoming cashflow from high-margin production at Walyering underpins the current share price, the exploration potential also represents a significant value driver.
It highlighted Gurvantes XXXV as having the next highest value in the company’s portfolio, noting that there was unrealised value given the potential of CSG in Mongolia.
Next up is the company’s Condor project, which the broker noted as having high leverage to exploration in the central Perth Basin while its stake in L7 and EP 437 were noted as having “tangible high-impact growth” from sought after Permian-trend exploration acreage.
Looking ahead, Euroz noted that potential catalysts for share price growth are the production from Walyering, success with the Mongolian CSG pilot program, exploration successes from L7 and EP 437, progress with Condor and any increases in Western Australia’s spot gas pricing.
Walyering has proven production capacity with both the Walyering-5 and 6 appraisal wells flowing gas at rates of 75 million standard cubic feet of gas per day (MMscf/d) and 35MMscf/d respectively, which is more than sufficient to meet the nameplate capacity of the gas plant.
Reserves of 54 petajoules provides for more than four years of production with the best estimate (2C) Contingent Resource of 32PJ and 2U Prospective Resource of 16PJ providing potential for further production life.
There is also potential for further growth with three leads – Badgingarra, Comaloo and Comaloo East – identified in the broader EP 447 exploration permit.
Given the constant demand for gas in WA, it is no surprise that the joint venture had little difficulty executing a gas sales agreement with Santos to supply at least 36.5 petajoules of gas from the field over five years with pricing at the upper end of the previously guided $6-$7 per gigajoule range.
Over in Mongolia, the joint venture led by TMK Energy recently completed three pilot production wells and is currently working to complete pump installation and remaining surface facilities before starting the dewatering process required to get coal seams to flow gas.
Gas breakthrough is expected within one or two months of the wells being placed on pump.
Condor could be the Perth Basin’s largest untested Jurassic-aged wet gas structure with 2U Prospective Resources of 408Bcf and 20.2 million barrels of condensate.
Like Walyering, it is close to existing gas infrastructure – this time in the form of the DBNGP, the main pipeline in Western Australia.
Work is currently underway to transfer the Condor tenure from vendor Maccallum Group to Talon.
At L7 and EP 437, the JV will finalise the best targets to drill in the permit, commence preparation – including the purchase of long lead items – for the drill program and execute the rig contract for a three well drill program over the rest of this year.
These permits are located at the northern end of the ‘Permian-trend’ that includes the Waitsia, West Erregulla and Lockyer Deep gas fields.
Talon also has the right of refusal over the Strike Energy-operated EP495, which has 2C Contingent Resources of 300PJ discovered by the Ocean Hill-1 well.
At Stockhead, we tell it like it is. While Talon Energy is a Stockhead advertiser, it did not sponsor this article.