Earnings Call: Q1 2025

Nov 12, 2024

Thank you for standing by, and welcome to the Tamboran Resources first quarter FY 2025 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I'd now like to turn the call over to Joel Riddle, Managing Director and CEO. You may begin. Thank you, and welcome to Tamboran Resources first quarter fiscal year 2025 result presentation. My name is Joel Riddle. I'm the Chief Executive Officer for Tamboran Resources, and I'm joined this morning by Eric Dyer, our Chief Financial Officer. Before we get into the material, I'd like to refer everyone to the disclaimer statement associated with forward-looking statements on slide 2. Starting with slide 3 and the summary of our activities over the last three months in the quarter. First, we completed the drilling of the Shenandoah South 2H well, in which the company drilled the first 10,000 foot horizontal section in the Bayou Basin. Unfortunately, as we were coming out of the hole following the drilling of this horizontal section, we incurred a mechanical issue that required the well to be redrilled via sidetrack. That sidetrack well is now being drilled in the horizontal section, and we are on target to TD that sidetrack well in the next few days ahead. Data from the SS-2H well and the SS-2H sidetrack well both demonstrate consistent geologic rock properties that we've seen in comparison to the SS-1H well. In addition, we observed no faulting through the full horizontal section, and we saw strong gas shows all the way through the entire interval. Drilling of the SS-3H well is expected to commence later this month from the same well pad. Again, the SS-3H well will be designed very similar to the SS-2H well with a 10,000 foot horizontal. Both the SS-2H sidetrack well and the SS-3H well are expected to both be drilled and cased by the end of this year. Liberty Energy also successfully mobilized new frack equipment from the U.S. into the Beetaloo Basin ahead of stimulation of our two wells planned for early first quarter of 2025. Also, as I foreshadowed at our last call, the company remains focused on progressing the development of the first local sand mine in the Beetaloo Basin. We hope to have phase one of this local sand mine up and running and in place as part of our 2025 drilling campaign. We believe this local sand mine will be a key driver to reducing cost and improving efficiencies for our 2025 drilling program and beyond. The cash balance that we held following the end of this quarter was approximately AUD 82 million. About AUD 7.6 million of receivables were associated with the sale of a rig here in the U.S. that has more than offset the additional AUD 5 million the company has incurred associated with the redrilling of SS-2H. Most importantly, we remain fully funded and on track to deliver our IP30 flow rates for both wells by the end of first quarter of 2025. Moving to slide 4 is a summary of the results for the first 2 wells that have been drilled on the 2024 drilling program. You can see again, the wells that we're drilling is the first 2 wells of a 6-well campaign that are right in the middle of our 1 million acre development area on the west part of the Beetaloo Basin. You can see by the picture on the right, is the well pad in which we're drilling our first 2 wells. You can see the stimulation sand that has arrived on site and also the area on the northwest corner of the pad reserved for our compression facility that we plan to commission during the year of 2025. As I said up front, the SS-2H well was spudded on in late August, we drilled to a total measured depth of 20,670 feet in 35 days. Within this well, we also geosteered a 10,000 foot horizontal section, which again is the longest horizontal section that has been drilled in the Mid Velkerri B Shale target in the Beetaloo Basin to date. Prior to running our five and a half inch casing, a downhole mechanical issue in the hole required the well to be redrilled and sidetracked from approximately 1,840 feet. We've now incorporated key lessons from the SS-2H well in the sidetrack well, and we've now successfully drilled approximately 16,200 feet with material increase in drilling efficiencies from SS-2H to the sidetrack well. Following the drilling of the SS-2H sidetrack well and casing this well, we will move immediately to the SS-3H well, in which we plan to commence drilling later this month from the same well pad. As I mentioned, the IP30 flow rates for both wells remain on track for release in first quarter 2025, subject to weather conditions. Moving to slide 5, you can see the days versus depth curve for each of the 3 wells that the company has drilled in the last 6 months. The SS-1H well, the SS-2H well, and the SS-2H sidetrack well in red. One of the biggest opportunities for the company that we've been able to execute over the last 2 wells is to incorporate learnings from the SS-1H well associated with improved drilling rates. We've seen a 6% increase in the average spud to TD drilling rate from SS-1H to SS-2H, where we exceeded 580 feet per day as compared to approximately 370 feet a day in SS-1H. Broadly, as we compare this drilling performance across other wells drilled in the basin, particularly in the deepest sections on the east part of the basin, you can see the 35 days that we were able to achieve to reach TD in SS-2H compares quite favorably to the two wells drilled by our partner, Santos, that were approximately 80 days. In addition, we've seen improved efficiencies from SS-2H to SS-2H sidetrack well, and we remain on track to drill that sidetrack well in less than 30 days. If we move to slide six, again, a comparison of the three wells that we've drilled over the last six months. I wanna highlight the key successes and lessons learned from each of these wells, particularly focusing on SS-2H. First is we were able to land a lateral section without any pilot hole. Not only did that confirm our geologic thesis around the location of SS-2H, which is approximately 3 miles north of SS-1H, but it also saved 6 days on drill time. Second, we were able to geo-steer through a 70-foot section, and we incurred no faults through the full 10,000-foot section. On the learning side, there's been quite a bit of focus on reducing non-productive time. We were able to improve our performance in the sidetrack well by using a KCl mud versus the calcium chloride mud that we used for both SS-1H and the SS-2H well. That improved mud system allowed us to shave quite a few days off the sidetrack well performance. In addition, we've been working with our partner, Baker Hughes, on improving the number of tool failures that we've had, particularly the RSS tool failure that we've had a number of issues with in the SS-2H well. That combined with an improved mud system, we've been able to drill the horizontal section as articulated on the well schematic on the left, from 17 days in the SS-2H well, to a projected 10 days in the sidetrack well. Moving to slide 7. One of the most encouraging things we've seen in the drilling of the SS-2H well and the SS-2H sidetrack well is the consistency in the geology as compared to what we saw at SS-1H well. The SS-2H location is about 3 miles away from the SS-1H location, and you can see by the log section of the 10,000-foot horizontal that we drilled in SS-2H looks very consistent in rock properties that we saw at SS-1H. In addition, we saw no faulting across this full horizontal section and strong gas shows across the whole horizontal section. These gas shows look very similar to what we saw at SS-1H. Overall, this is a very encouraging and our ability to demonstrate a consistency around productivity across this 10,000-foot horizontal as compared to the SS-1H well. Moving to slide 8. As I mentioned, we now have the full Liberty frac spread on location that's been imported from the U.S. This is a, will be the largest frac spread in all of Australia, 80,000 horsepower, 32 pumps, 240 sandboxes. I'm incredibly excited about the opportunity to see optimized stimulation across the 120 stages that we'll be pumping across 2 wells, and also the potential for material cost reductions, not just for the 2 wells that we're drilling and completing this year, but also for the 4 follow-up wells that we have next year. Our target is to be pumping 5-7 stages a day with this new equipment, and that compares very favorably to the 1 stage a day that we were pumping with the previous equipment that we used for SS-1H. Moving to slide 9. Again, we are progressing the development of the first local sand mine in the Beetaloo Basin. You can see on the map in the upper left-hand corner of the slide, the 11 sand mining leases that the company has been granted by the NT government. 3 of those locations we've identified a sand resource. That could generate an equivalent 100 mesh sand that we need for our completions. And the quantum of sand that we've identified is enough to support the completion of 500 development wells. One of the things I'm most excited about is, as we move down this cost curve on sourcing sand locally in the Beetaloo Basin, we have the opportunity to reduce our current sand cost in our wells of around AUD 4.5 million to approximately AUD 0.5 million per well. In other words, we have an opportunity to reduce the overall well cost for our 2025 program and beyond at approximately AUD 4 million for each well. Moving to slide 10, our current cash position as of the September 30th of this year is approximately AUD 82 million. You can see we started the quarter with a cash balance of AUD 75 million, an additional AUD 7.4 million incorporating the Greenshoe post our IPO in late June. We've had approximately AUD 19 million in cash that's gone into the ground for the drilling of our 2 wells. In addition, we had net proceeds of AUD 7.6 million from the sale of a U.S. rig that we've been marketing for the last few months. That AUD 7.6 million in net proceeds, again, more than offsets the AUD 5 million of budget impact we've had associated with the redrilling of our SS-2H sidetrack well. Importantly, the company remains fully funded to deliver our IP30 flow rates from our two wells that we anticipate announcing to market in late first quarter of 2025. Finally, on slide 11 is the upcoming catalyst. Again, we look to finalize the drilling and casing of SS-2H sidetrack and the SS-3H well. We will initiate stimulation activities and flow testing of these two wells in first quarter, and currently on track to announce our IP30 flow rate results from these two wells in later part of first quarter of 2025. In parallel with all this, we're finalizing the stakeholder and regulatory approvals associated with our pilot project. Also, that will lead us to commencing construction of the facility and pipeline infrastructure to support our pilot project. First gas that, again, we're anticipating in first half of 2026. Thank you very much, and I'll turn it back over to the operator for our Q&A session from here. Thank you. Thank you. Your first question today comes from the line of Charles Mead from Johnson Rice. Your line is open. Yes. Good evening, Joel and Eric. Thank you for staying up late to do this call your time. Joel, I wonder if you could talk a little bit more about where in the hole you had that mechanical problem. It sounds like this is kind of a known problem with a known solution, given your success in redrilling this. I wonder if you could kinda tell a little bit more about it and what you're gonna what you guys have done differently on the sidetrack. Yeah, sure. Thanks for your question, Charles. you know, as I mentioned in my opening remarks, we finished the drilling of the horizontal section for SS-2H, and as we were tripping out of the hole with the drilling assembly, we hit a tight spot at approximately 4,000 feet. That tight spot resulted in us increasing the amount of torque that we saw on the drill string. We ended up parting that drill string again, around 4,000 feet. That drill string in total was around 800 feet. There was 800 feet of drill string that we left in the hole. you know, after consulting our JV partners, we went in to try to fish the drill string that we left in the hole. Couple of days that we spent trying to fish and we made the decision as a JV to pump cement and sidetrack. As far as the learnings are concerned, you know, as I mentioned, we felt like mud integrity contributed to the sticky spot that we saw as we were coming out of the hole. Again, after consulting our JV partners, we shifted from a calcium chloride mud to a KCl mud. We've already seen some better performance as we were drilling the SS-2H sidetrack well. That greater mud integrity I think is already showing some benefit. You know, big picture, you know, as you look at a lot of the shale basins that have been developed in the early stages here in the U.S., you know, in any of these early drilling situations that we currently are in the Beetaloo Basin, there's optimizations that you're constantly working through, everything from well design to mud systems. You know. The good news is I think we're able to leverage a lot of our team's experience from a lot of the basins that we drilled in here in the U.S. Obviously, leveraging our JV partner, in Bryan Sheffield's team, to really, you know, make some adjustments going from SS-2H to the sidetrack well. Just to give you a kind of a sense, we were averaging around 530 feet per day in the SS-2H well. In the SS-2H sidetrack well, we were, we're averaging about double that kind of penetration rate per day. We feel pretty good about the upgraded mud system. That doesn't mean we're not gonna continue to evaluate. We're already looking at ways to further optimize the mud system from the results that we're seeing in the sidetrack. I'll stop there. If there's any further questions on this, I'm happy to take any follow-up. That's great detail, Joel. Thank you for that. In your prepared comments, you mentioned the completion timing being weather permitting. I'm guessing that's seasonal rain, but maybe you could just tell us what the variables are there. Yeah. In the Northern Territory, you do have a rainy season that is generally from late November to sort of end of March is the window. You know, I guess the thing that we have as a company been able to, I would say build as a core competency is being able to complete wells, perform operations out there all the way through the rainy season. I think you'll remember the SS-1H well, we pumped the completion for SS-1H right through the rainy season. You know, our guys out there in the field are well equipped to accommodate sort of the operational requirements around completion. It's not ideal. We'd much prefer to be pumping our completion during the dry season. Where we are today, you know, we're making necessary adjustments. Things like making sure the sand stays dry. You know, that's the main thing, not having to deal with the wet sand. You know, we're also, again, working very closely with Liberty. You know, I think having the increased, you know, their equipment out there in the field, I think is gonna, you know, always help our ability to have efficiencies across pumping these two, you know, pumping the completion for these two wells. That's great detail. Thank you, Joel. Your next question comes from the line of Kailey Ekmemian from Bank of America. Your line is open. Hey, Joel. Good morning. Obviously, a sidetrack here isn't ideal, but it sounds like you're really making good progress on your project so far. Maybe from a cost standpoint, can you talk a little bit about the difference in cost between the two mud systems and whether what you're seeing so far puts a downward pressure on your ultimate well cost? Yeah, it's a great question, Kailey. Look, as I mentioned, we're able, in the sidetrack well, to have an increased efficiencies. You know, we're seeing kind of above 1,000 feet per day compared to, you know, 530 feet a day that we saw in the SS-2H well. The sidetrack, we're doing a lot better, you know, with the new mud system. The change of the mud system or the cost of that new mud system is very negligible related to our overall well cost. It's just we're able to see ROPs that are a lot better. You're right. I mean, drilling the sidetrack is not ideal, but it gave us another opportunity to get down the efficiency curve as it relates to improving drill times. You know, I hope that that will continue the more wells we drill. That's what, you know, other operators in the U.S. have seen. The more wells you drill, the more efficient you are. I think that same thing's gonna occur here in the Beetaloo as we drill more and more wells. For sure. You guys will definitely get better with more reps. Maybe you can talk a little bit about the cash craze over the next 18-month period. Just remind me, there's a gas processing plant that's in construction that can be monetized. What's the latest on that front? Yeah. We've completed FEED work on the compressor facility. You know, we've already put down some long-lead capital to preserve the timing to have that facility delivered to site and commissioned in second half of next year. You know, that is currently in process. We're right on track to deliver that. You know, one of the opportunities we're working on today is sourcing necessary midstream capital as we get into the chunkier capital requirements coming into next year. Those are things we're working on. We'll have some further announcements on that in future earnings calls. Everything's going as, you know, as planned as we speak. Thanks for that, Joel. I'll see you later today. Okay, sounds good. Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Ansh Kataria from Hannam. Your line is open. Hi. Good morning. I had a couple of questions, please. I was wondering, first of all, if you could give a bit of an update in terms of the NT government's plans for the Middle Arm and how that's progressing. I suppose related to that, the NTLNG, any kind of progress or updates you have over there. Then secondly, I was just wondering if there's also any updates in terms of the checkerboarding of acreage, when you're expecting to finalize that and the potential impacts over there. Thank you. Yeah, sure. On your first question, the government remains very focused on progressing an environmental assessment over Middle Arm. That process kicked off middle of last year. You know, that is continuing. They expect to reach a final environmental assessment being completed by the end of 2025 is their target. From where I can, you know, kind of from my perspective, they are on track to deliver on that timeline. We've had a new government come into power in the Northern Territory, it's the Country Liberal Party for everyone not familiar with the terms. In Australia, Liberal Party means right of center, they've been very positive around both the Beetaloo and Middle Arm since they've come into power a few months ago. They had a really nice announcement overnight related to their support of the Beetaloo and therefore Middle Arm. You know, I think we have very strong support at the local Northern Territory level. You also remember that the federal government has committed one and a half billion Australian or about $1 billion U.S. for the Middle Arm project that will go toward common user infrastructure. You know, we enjoy both, you know, federal government support and local government support on Middle Arm. As far as what the company is doing on our NTLNG project, we remain on track with working with our new partner, Bechtel. Bechtel kicked off pre-FEED studies over the last quarter, and we hope to finish those pre-FEED studies by second quarter of next year and be in position to move to FEED for NTLNG. We'll be working on FEED in second half of next year through middle of 2026, and there's where we would line up. You know, the environmental approval hopefully will be in place for Middle Arm. We'll have our FEED study completed. We'll have the drilling of our six pilot wells with long-term flow tests with some cash flow to get us comfortable around reserves, and that points us to a sanction decision as early as the end of 2026. You know, as far as the checkerboard is concerned, we're in commercial discussions with our partner, Daly Waters Energy, that's the company led by Bryan Sheffield. Those commercial discussions are ongoing. As far as the details around those discussions, I think it's a little early to discuss at this point, but we'll likely update the market further on the conclusion of the checkerboard discussion in first half of next year. Great. Thanks, Joel. That concludes our question and answer session. I will now turn the call back over to management for final closing remarks. Well, thanks very much for everyone joining this morning. We look forward to updating the market further in the next three months ahead. If there's any questions that anyone has as follow-up, please reach out to the company. We'll reach right back out to you. Thanks very much. This concludes today's conference call. Thank you for your participation. You may now disconnect.