Cashflow from Walyering will fund further drilling in the Perth Basin and beyond. Pic via Getty Images.
Mining
With cashflow expected to start in a month’s time, Talon Energy is uniquely differentiated from countless other explorers in being able carry out further drilling without tapping the market.
Indeed, the company’s cornerstone asset – its 45% stake in the Strike Energy operated Walyering gas field in the Perth Basin – is expected to deliver up to $30m in free cashflow per annum, sufficient funds to fuel drilling and other exploration without having to raise capital.
This will undoubtedly be welcome given the flurry of activity that Talon Energy (ASX:TPD) has planned over the coming months across its projects in the Perth Basin and Mongolia.
Not bad a result for a company that was a minnow with a market capitalisation of $3.5m just two and a half years ago and which has since seen its share price grow by 4.5 times to 0.18c since January 2020 and increased its market capitalisation by more than 30-fold to $112.9m thanks to wise farm-in decisions and exploration successes.
Managing director Colby Hauser gives Stockhead the lowdown on the projects that have helped deliver the company’s rapid growth and imminent cashflow.
Central to the company’s success is its 45% stake in the Walyering project, which Hauser believes is arguably the fastest to market exploration success stories ever in Australia.
“It took the better part of 18 months from exploration into production. That field will produce for about seven years or so and has been incredibly cheap to build and develop because it is just 440m from the pipeline,” he noted.
“Once Walyering starts production, it will fund further exploration across our portfolio”.
“We’re fully funded to come into production and our production will give us more than enough cashflow to meet our commitments to drill five wells in two years.”
Gas flaring during flow testing of the Walyering field. Pic: Supplied (TPD)
Highlighting the quality of the project, the Walyering-5 and 6 appraisal wells flow tested at a peak rate of 75 and 35 million standard cubic feet of gas per day (MMscf/d) which is more than sufficient to meet the name plate capacity of the gas plant 31.28MMscf/d (33 terajoules per day ).
Walyering also has gross proved and probable (2P) reserves of 54 petajoules (51.2 billion cubic feet) of gas with potential for further growth from the best estimate (2C) Contingent Resource of 32PJ and (2U) Prospective Resource of 16PJ.
It also has associated condensates of about 0.8 million barrels of oil equivalent, which provides a valuable secondary revenue stream.
The company also in March this year formally took up a 25% interest in the Triangle Energy-operated L7 and EP 437 permits in the North Perth Basin.
3D seismic carried out over L7 has already identified three top prospects – Booth, Huntswell Deep and Mountain Bridge South – that have combined Prospective Resources of 393Bcf.
Over the rest of this year, the partners 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.
“We are looking to drill that in the first quarter of next year, but the distinct advantage is that it (L7 and EP 437) does have 3D seismic on it and it is right on the pipeline as well,” Hauser added.
“It is one of the best positions in the North Perth Basin next to prolific discoveries being immediately north of Waitsia and immediately west of Lockyer Deep.”
L7 is located close to the third-party Waitsia gas field and Lockyer Deep gas discovery. Pic: Supplied (TPD)
The final project is the wholly-owned Condor project in the Central Perth Basin, which the Western Australia state government has yet to formally transfer to the company.
“We will have 100% of it, which is unique in our portfolio and it is Jurassic-aged wet gas similar to Walyering, but with a significantly higher liquids profile and like the other assets in our portflio it is right on the pipeline, about 5km from the DBNGP, the main pipeline in Western Australia,” Hauser noted.
He added that proximity to infrastructure is one of the strengths of the company’s Perth Basin assets as it allows for projects to be brought into production very quickly using a small pipeline laterals, which also tends to result in streamlined approvals and project development.
The Perth Basin has developed into a world-class gas province and it helps that WA has arguably the best regulatory framework in the Southern hemisphere. An additional advantage for Talon is the huge industrial gas demand in Western Australia for everything from power generation, mining, and heavy industry as a whole.
While the Perth Basin is certainly the engine that powers Talon, it is its one third interest in the Gurvantes XXXV coal seam gas project operated by TMK Energy that has the potential to deliver massive upside.
The joint venture recently completed drilling all three pilot production wells, each of which intersected at least 60m of gassy coal – including 68m at Lucky Fox-3.
Production casing has been run in all three holes and throughout June, work will continue with the installation of pumps and the remaining surface facilities before the pilot well pumps are commissioned and the dewatering process started.
Dewatering, which is a key step required to reduce pressure in the coal seam before gas can be produced in any significant quantities, will be carried out in a controlled manner with first gas breakthrough conservatively expected within one or two months following the wells being placed on pump.
Location of the Gurvantes XXXV project. Pic: Supplied (TPD)
Hauser points out that the results from the pilot wells and the earlier exploration wells has granted the company a great deal of confidence that Gurvantes XXXV can flow gas in a commercial manner.
“And with gas to surface, we are showing that the 1.2 trillion cubic feet Contingent Resource is commercial and that we have opened up a whole new coal seam gas province,” he added.
“We are where Queensland was about 25 years ago when CSG exploration was just coming into its prime.
“You are opening up a new area right next to China, which has the highest energy demands in the world and is desperate for natural gas.”
And if having a project with resources that are an order of magnitude higher than what it has already established in the Perth Basin wasn’t enough, Hauser notes that the Contingent Resource represents just 1% of the 8,400km2 area covered by the project meaning there’s plenty of potential for future exploration to deliver further growth.
The success of Gurvantes XXXV to date has been hugely attractive for the company given that it has spent just $7m to $8m in several stages, which has allowed it to be conservative with its development capital.
Over the next 12 months, Hauser expects Talon to use the imminent cashflow to build its cash position before deploying it to drill two to three wells by this time next year.
Most of these wells are expected to be drilled in the Perth Basin where a success case can be worth hundreds millions if not billions in revenue given rising gas prices in WA.
All this work will be overseen by the company’s management team, which Hauser describes as being “very strong”.
“We’re batting far above the average in terms of the quality personnel that work for us,” he noted.
“Our new chairman (Greg Columbus) has just come from Warrego Energy, which was acquired by Hancock, and has a very credible track record of creating value for shareholders,” he noted, adding that the company’s exploration manager Darren Ferdinando has a PhD focused on the Perth Basin.
Hauser himself is an experienced energy executive who worked for Strike Energy for three years prior to joining Talon, giving him significant experience in the Perth Basin as well.
“A lot of companies say it, but we do have very unique expertise for a company our size,” he concluded.
Becoming a producer is often transformational for ASX oil and gas juniors.
With first gas expected by the end of June, Talon is poised to enter the exalted ranks of producers, who typically trade at a higher premium relative to their exploration and development peers.
This article was developed in collaboration with Talon Energy, 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.
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