Investor update

Jan 24, 2024

Slides

Good morning and welcome to the Mosman Oil and Gas Limited investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Andy Carroll, CEO. Good morning to you, sir. Good morning, ladies and gentlemen. Thank you for your interest in Mosman Oil and Gas. Some of you know the company very well, but there may be some people new to Mosman. Moving through the required disclaimer. Mosman has two main areas of operations. In the United States, we have production assets which we know have value based on production and reserves and provide cash flow. The 2023 financial year, over $2 million in cash flow from the U.S. assets. The exploration assets are in Australia and have significant potential for hydrogen, helium and hydrocarbons. The Board has a wealth of experience in resources and managing companies. I have been with Mosman for 10 years, since the initial public offering. Nigel joined about a year ago, and Carl joined the Board about four months ago. This is one of the production facilities on the Stanley lease in Texas used to store oil. The facilities are relatively simple, with flow lines from each well to a separator. Gas is used or vented, oil stored and then shipped in road tankers. Water is collected and then injected into water disposal wells. Very standard onshore U.S. oil and gas operation. The Mosman producing assets are in multiple leases. This map shows one of our core areas, the Stanley, Livingston, Greater Stanley and Winter leases and wells. We have different working interest in each of these wells. Initially, we started with around 16%, and we've now increased and taken over operatorship, which gives us control over the pace of expenditure. This is our core area that we operate. The other core area is Cinnabar. At Cinnabar, it's a great acquisition. We acquired it when oil prices were depressed, a low entry cost. We know there's a lot of oil and gas in this area. It's been producing since two wells were drilled in the late 1980s. We have a 3D seismic, which has defined the shape of the field, so we have good understanding of the shape and where to drill. We successfully drilled one well, Cinnabar-1, which is on production. There's enough information in this field to be able to calculate the reserves. With the information for Cinnabar, the reserves were recalculated and over 1 million barrels of oil remain in this structure. The lease area is held by production. The 3D seismic indicated prospectivity extended outside this one lease area to the southwest, and we have acquired additional lease area to be part of a future development. Stanley has also had the benefit of 3D seismic, with enabling us to drill five wells at Stanley, all of which have been successful and put on production. Originally these wells were drilled with either no seismic or 2D seismic. 3D seismic is really a much better way to map and to understand where to locate each well and has been very successful in risk reduction and making each of the wells that we've drilled a success. Focusing on Cinnabar, we have 75% and operate, which we're very happy to have that larger percentage. It's more significant for us. All three wells are on production. We do have some production issues that we're working on, but we believe that can be overcome. The value we know in this project from the reserve reports, significant reserves and therefore significant value. We are working on the potential for this field, and it will be one of our major growth areas going forward. Specifically, the wells need to have a production boost with artificial lift, and we're in the process of acquiring and installing pump jacks as our preferred method of artificial lift. If that's successful, that will increase production and cash flow and give us confidence in future development plans. Moving to exploration, we also moved from the U.S. to Australia. This picture shows the terrain in Central Australia, where the Mosman exploration permits are located near Alice Springs in the Northern Territory. This is a map of the Amadeus Basin to the southwest of Alice Springs. You can see Alice Springs on the main road in the top right-hand corner. A lot of wells have been drilled in this basin and significant amounts of oil and gas have been discovered. There has been production from the Mereenie oil and gas field for over 20 years, and also from the Palm Valley field. Dingo is a more recent development. Primarily, the development has been around hydrocarbons, oil and gas. Two wells in the southern part of the basin demonstrated significant amounts of helium and hydrogen. If we look at the amount of helium at the Mt Kitty well, the most southerly well, we see 9% helium and 11% hydrogen. Now, both of these are significant on a global scale, both the helium, where it's used in a lot of scientific equipment like MRI machines and is now in a global shortage. Recent increasing interest in helium is for clean energy, and it's a lot lower cost and better for the environment to tap into natural hydrogen than it is to use a lot of energy in converting water into hydrogen. We think this has, the helium and hydrogen, a significant commercial potential. The hydrocarbons, there's existing infrastructure and can be brought on stream relatively quickly. Interestingly, even Mereenie, where there is less than 1% helium, there is now a project in place for helium extraction, demonstrating the commerciality of helium even at less than 1%. The targets identified by Mosman with, importantly, both of these permits have had wells drilled in them. Those wells have encountered hydrocarbons. We're a very favorable situation. We know there is both structure with existing seismic, and we know there are gas traps and hydrocarbons in these two permits. They haven't been tested for hydrogen and helium. We have the right rocks in the basement to generate hydrogen and helium and the right salt seal in the sequence to be able to trap and hold the hydrogen and the helium. We believe we're in the right place. As you can see, fairly central in this Amadeus Basin, EP-145, and slightly further to the northwest, EP-155. Why are we so positive about these two permits? As I say, they both contain wells that have tested hydrocarbons. We know the basin has producing oil and gas, where there is good infrastructure in the Amadeus linking up to both Darwin in the north, where helium has been exported after being extracted from a big LNG project gas field in Darwin. There's now a pipeline joining the Eastern States' gas market in Australia, where gas is a shortfall of gas and high prices making gas production economic. We were hoping that Santos and Central would have drilled some of these deep wells already. Unfortunately, that has been delayed, but there are work obligations that Central and Santos have to drill, and we expect that they will drill deep wells in 2024. We hope to learn from the data that becomes public in the near future. We have enough information to be able to estimate some prospective resources, as shown in this table. We know these structures are big and these are commercially significant, while still prospective. It's certainly a target worth chasing. Now we're very pleased to have, in October last year, signed a farm-in agreement so that the funding of the seismic and the drilling is largely taken care of by the farminee, an ASX-listed company called Greenvale. By spending approximately AUD 7.5 million on this permit, they will earn 75% interest, and we're able to keep a 25% working interest with carried costs effectively. Hopefully no cost to Mosman for 2023 and 2024, while the seismic and the first well is drilled. We also have some quote there from Georgina. The relevance there is that we have also farmed out EPA 155, which is a permit in the application stage, yet to be granted. Georgina are putting the work in that's required to work with the CLC and the native title interests to get that permit granted and in so doing, they will earn an interest in that permit and we will get carried through that process. To summarize and to give an outlook, we have a focused business strategy, a great cornerstone for an early-stage company. We have assets in the U.S.A. that we can commercialize. Now, so far, that's been largely through cash flow, but there is the potential to commercialize through the sale process. We have a lot of upside still in those permits for potential reinvestment. Our main exploration focus is in Australia, and we're fortunate to have potential for not only hydrocarbons, but also helium and hydrogen. We've recently restructured to reduce G&A, and we have still access to all of the expertise that we need through consultants that, when we require, we're available to access that expertise. We don't pay for it when we don't need it. We think we're very cost efficient, but we have the expertise and experience that we need. The outlook going forward, where to from here? Optimizing production and commercializing the assets in the U.S., we've got development potential in Cinnabar and expanding the acreage to include highly prospective area to the southwest, where we have identified development opportunities, and the exploration activity funded by farm-in agreements. We acknowledge it has been challenging for our investors with a decline in share price. We're focused on delivering on the business strategy for all shareholders' long-term benefit. We've made good progress in Australia with the farm-in at EP-145, where we retain 25% and Greenvale paying to take the project forward to acquire seismic in 2024 and drill in 2025. Now, this is a very exciting project with high potential for hydrogen, helium, and hydrocarbons. We continue to work on our U.S. portfolio with a clear view to improve production, increase cash flow, with an immediate focus on Stanley, where we're working on optimizing the surface equipment, and at Cinnabar, where we need to install artificial lift. Finally, we believe we have right-sized the business operating costs. Importantly, reduced G&A in order to give us a tighter cost control whilst retaining the capability to be able to deliver on what we have outlined. Thank you for your attention and I'll now open it up to questions. Andy, thank you very much for your presentation. What I'll do is I'll just bring your camera back up. Now, we have received a number of questions, both pre-submitted and during today's live meeting. We'll try to get through as many of these as possible. I want to start off with the first one here, which reads as follows. How will Mosman unlock the AUD 7.5 million joint venture valuation versus a GBP 1.3 million market cap? The farm-in agreement with Greenvale is based on Greenvale paying AUD seven and a half million of exploration work within a 75% interest. This can be used to infer a current project value of over AUD 10 million. Clearly, parties are not going to invest in the project unless they believe it's more than the planned expenditure. Mosman retains a 25% interest in that project. We notice that other hydrogen project companies such as Gold Hydrogen in South Australia, have a market capitalization of around AUD 50 million after drilling confirmed evidence of hydrogen in boreholes. In terms of analog companies, that's certainly one to pay attention to. We believe there's a disconnect between the project value and Mosman market capitalization, especially as Mosman has other assets with production and revenue in the USA, as well as these exploration assets. It's unfortunate that short-term effect of a capital raise negatively impacts the share price regardless of the asset values. Hopefully over time, one may expect the share price to reflect the asset value in the longer term. Perfect. Thank you very much. Maybe just following on from that, what does success look like in 2024 for the share price, and how are you going to achieve it? With the production base in the U.S. and progress at 145, we're continuing by steadying the ship. By commercializing assets in the U.S., either by revenue or by sale, and managing the cash flow, for example, through the farm-out of EP-145 and 155. We believe that the strong asset base will start to be reflected in the share price. Perfect. Thank you very much. What reassurance can you give that there'll be no further raises in 2024 and the business will become self-funding? We've made positive steps towards self-funding, including reduction of corporate overheads, establishing production revenue. The Board has managed its cash outflows, for example, through the farm-out of EP-145, the commercialization of the U.S. assets, and reduced overheads. With this in mind, there are no current plans for any equity fundraise. Perfect. The U.S. team has struggled to cope with maintaining flow rates. Is the team too small to handle the amount of work required to keep on top of these things? Less production equals less money coming in, perhaps. Yeah. I'm not sure I can agree that the U.S. team has struggled. The nature of the Stanley field requires periodic workovers and production optimization. We installed gas lift infrastructure, which takes some time, and the gas lift was working very well in the first half of 2023. Unfortunately, the gas availability for that system declined, and we had to switch to an alternate production system. We brought jet pumps in, and there have been teething problems with the jet pumps, a bit of a learning curve. Although we had third-party advice on what was the best system, there have been teething problems with that. It has increased production, but there's also some aspects like we got more water and more sand that we have to deal with. There have been some things at Stanley, for example, the requirement to abandon one of the water disposal wells that failed a test. These are relatively routine production operations, but they have taken up time and money. We have a dedicated operations manager who calls on contractors as required and gets the work done that needs to be done. It's not a set-and-forget operation. It's fairly busy operation. Now, if you look at what about getting more people employed, the problem then is you increase the costs and reduce the economics of running the field. I think we've got the right setup with a dedicated operations manager and contractors coming in as required. There are periodic fluctuations in production, but we're confident that we're heading in the right direction. Perfect. Thank you very much. With the old Cinnabar wells, can we not do a side drill instead into another zone? It's certainly technically possible. The cost would require to bring a large drilling rig onto location and the drilling time it takes. It's technically possible but expensive relative to far more simple operations. A drilling rig is $25,000 a day with associated other costs. You might be looking at 10 days, so a quarter of a million U.S. dollars to look at any drilling operation. Whereas installation of a pump jack, the acquisition cost is somewhere between a secondhand one that can do the job might be $20,000-$30,000, and the whole program can be hopefully somewhere around $50,000-$60,000. At a much lower cost, there are alternatives that we want to try before we bring a drilling rig back on. Certainly a possibility down the track, but not our current plan. Perfect. You may have touched on this, but do provide further clarity if you can. Is there an option to drill horizontal wells in Cinnabar to max flow rates? Yeah, it's really the same answer that it's possible, but not our preferred methodology at the moment based on the economics. Perfect. Thank you very much. Has there been interest from other parties for Stanley, Winter, Livingston, Arkoma? What would be the minimum you'd want if you sold them all? Sorry, and what would you want if you sold them all and focused on Cinnabar? Yeah. We haven't actively marketed, so we haven't been engaged with any parties. We want to get the production rates optimized and stabilized in order to prepare. That's the right position to be in to consider selling and to consider offers. Obviously, the oil price affects the potential sale price. There are some industry rule of thumbs around dollars per flowing barrel that we've got a pretty good handle on what we think the asset is worth. We think we've added significant value, and it would be well above what we paid for this asset, which we increased our interest with about $1 million paid for 20% working interest. We have a significantly higher working interest now, and we've increased the flow rates. I hope that's the best guidance I can give. Perfect. Thank you very much. Once a new well has been successful, why not just have installation of surface and downhole equipment to boost production with jet pumps at the beginning, knowing that production rates will slow down as most wells have with our past wells? Yeah. Each zone has its own characteristic. Typically, you certainly get oil. Well, some of the zones even start producing gas and then increasing oil, and you also get some water production. Each zone, you need to flow and see what happens as it stabilizes in order to determine what the best optimization is. Typically, they flow without any assistance for some period of time. With some natural pressure decline, we look at what's the lowest cost or appropriate. You really need to get the production information and understand what each zone is giving you before you can decide what the best artificial lift is. We're very happy with gas lift when we had gas available. That also changes the decision-making as to whether we got to surface a gas or not. Thank you very much. Arkoma has been up for sale since 2020, a heavily invested, poor-performing asset. There has been no reported attempts to increase production or make the asset more attractive for sale. Why is this, and how will you achieve a sale? We don't operate at Arkoma. It's a family business that operates that asset. They do continually work on the asset. According to their sort of schedule, there was a lightning strike and they had to do a lot of work to refurbish on the back of that. It's not a major asset for us. It's kind of for accounting purposes that we noted it was for sale. We haven't actively marketed it. It's largely a gas-producing asset, and there's a lot of pipeline costs that come off the gas price. It doesn't make a lot of money at low gas price, but at high gas price, the production is turned on and it's very profitable. The right time to sell that asset will be when gas prices are high. At the moment, they're low and we're not actively marketing Arkoma. We've already got other priorities that we're focused on. Perfect. Thank you very much. It is fair to say, up to now, Nodril has performed behind an initial couple of weeks up to reported expectations, causing raise in dilution. What will change to address this issue? I don't think it's fair to say that. I think the wells that we have drilled are all on production, with perhaps the exception of Falcon, that declined and we sold. The wells are on production. There's still value in each well while it produces. Yeah. I guess I'd have to question sort of the opening assumption on that. Cinnabar 1 is a well in particular that we're not happy with the production rate. The Wilcox formation is known to be a bit difficult. We had some operational issues when we were drilling, around delay on equipment arriving on site because the oil price was strong. Everyone else was using equipment, and we had some delays. We're working out to what extent that may have caused some reservoir damage. We're working a number of ways to increase production there. Our current view is that artificial lift is the right way to go. Cinnabar-1 has been a well that I guess it'd be fair to say that we're disappointed with the performance on that one. Otherwise, the wells have been doing quite well. Coming to the question on dilution. It was the business plan 12 months ago. All the information on Cinnabar-1 was that it was a success, not just operationally, but also geologically. We had third-party logging reports and analysis. We had the reserve report. Everything was looking good. Had that been the case, then we would not have needed to raise capital. It's correct that the lack of production and therefore revenue from Cinnabar has adversely affected our cash flow and required capital raise. I think it's fair to say, the performance of Cinnabar meant that we did have to raise capital that we had hoped not to. Thank you. Just turning to the next question, when will the pump jacks be fitted to the three Cinnabar wells with reported flow rates? So we're in the process. We've been making offers on pump jacks and negotiating. We're keeping a tight control on cash flows, so we're not running out to write a big check. We're negotiating on acquisition. We got one that's in the area that we had an offer rejected. And our operations manager is actually in Australia at the moment. So, operations continue, but we do see that they should have a pump jack acquired and installed in the first quarter of this year. Thank you very much. Grace at Stanley, despite three RNS workover attempts, has failed to produce any oil flow. Why did Mosman increase its stake from 20%-40%? What are the plans for this moving forward? Yeah. It's a very small amount of money that Mosman has put into this permit. If you look back on the map, you can see that it's adjacent to the Stanley leases. It has the potential for extension of the Stanley reservoirs into that area. There were some assets involved. There's some pump jacks on that lease. I don't think that we paid a lot more than the asset value for that lease. There were a couple of low-cost possibilities that we did try workover to see if that would give us production. They didn't work out, but we haven't spent a lot of money on that lease. Thank you very much. Mosman has appointed SRK to undertake an independent review of EP-145 and EP-155. What happened to this review, and why was it not made public? The work program with SRK was in two phases. For a company like SRK to prepare a public report such as you would get in a IPO prospectus is a expensive exercise. They have a large number of checks and balances that they undertake. A much lower cost in the first stage that we agreed with SRK was to do some valuation work. They put that together for us, and that helped us in our corporate review in deciding what to do with the assets. The amount of money we paid was such that it wasn't the same amount that SRK would want in order to make that a public document. At the same time, the farm-in agreement with Greenvale means that it's really overtaken the SRK study. The SRK were looking at valuation metrics. Clearly, if you've got a Greenvale farm-in, is a real market number for these specific permits and overrides any sort of theoretical basis that SRK were working on. Georgina Energy still has not listed and has been very disappointing. Are there other interests on EP-155 who can take this forward and give regular updates via Mosman? Our arrangement with Georgina Energy is that they progress the native title negotiations, which they are doing. It's not really our business as to how their IPO is progressing or not. What month is the soil helium study planned? Will Greenvale be responsible for the cost of this study outside of the $50,000 grant allocation? Yeah. We've talked to Greenvale about this, but their view is that they'd rather focus on acquiring the seismic and not proceed with that project. Perfect. Just turning to the next question. Is there a likelihood of drilling EP-145 in 2024? Look, it's not out of the question to drill based on the existing data. The work program was designed to both risk reduction and basically to make sure the well's drilled in the best place possible. It makes more sense to acquire the seismic, interpret it, and then drill a well. One of the wells in that permit was actually drilled before seismic, and although it was only about 200 m in the wrong place, it was 200 m in the wrong place. If they had waited for the seismic, it would've been a much more interesting result. It's technically appropriate to acquire and interpret the seismic and then determine where to drill the well. That acquisition interpretation takes a few months. The well preparation takes a few months. I think it's going to be 2024 for the seismic and the following year when we see drilling. Perfect. Will Mosman, Greenvale, and Georgina Energy pool resources together to promote their companies and drilling prospects? There are no plans to do so. Perfect. Another question here. What has happened to production on Cinnabar compared to initial expectations? Why weren't these issues predicted? Does this reflect lower quality reservoir? Certainly, the results were not as good as we expected based on the other two wells and their initial production. We're still working a way to see what the issues are and how best to resolve them. We have seen nearby that fracking has significantly improved production, and we did try that on one of the older wells. It didn't make a big difference on the production rate. There's stacked pay. Each zone has a slightly different characteristic. We've got a lot of alternatives as to whether to work over and look at producing from different zones. Our preferred first step is kind of the lowest cost. The one we believe is that artificial lift will both make a significant difference to the production rates and will give us more data as to interpreting what's happening downhole. That's the one that we're working on now. A lot of work happening at Stanley in the second half of 2023. That's being tidied up and we're looking at more of a focus on Cinnabar in this year, 2024. Perfect. Andy, that actually concludes the questions from investors. Of course, the company can review all the questions submitted today, and we'll publish those responses on the Investor Meet Company company platform. Just before redirecting investors, provide you with their feedback, which I know is particularly important to the company. Andy, could I just ask you for a few closing comments? Yeah. Okay. We're working steadily to improve production and commercialize the assets in the USA. We've succeeded in farming out EP-145, so that exploration is funded, and that is a very high potential area. Our permits are well located and with a good database already for optimism on the significant potential for hydrocarbons, helium, and hydrogen. I think it's going to be a good 2024 for Mosman going forward. Perfect. Andy, thank you once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the Management Team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the Management Team of Mosman Oil and Gas, we'd like to thank you for attending today's presentation, and good morning to you all.