Tamboran Resources - Earnings Call - H1 2025

Transcript

Operator (participant)

As a reminder, this conference is being recorded. It is now my pleasure to introduce Joel Riddle, Chief Executive Officer. Thank you, sir. You may begin.

Joel Riddle (CEO)

Thank you and welcome to Tamboran Resources' second quarter fiscal year 2025 result presentation. My name is Joel Riddle, Chief Executive Officer for Tamboran Resources, and joining with me this morning is Eric Dyer, Chief Financial Officer. Before we get into the materials, I'd like to refer everyone to the disclaimer on slide two associated with forward-looking statements. Moving to slide three and the highlights of the last quarter. First, the company successfully drilled and cased the SS-3 well. This well included a full 10,000 ft horizontal section and drilled at a Beetaloo Basin record, 840 ft per day. Two, we completed the SS-2H well. Over 35 frac stages were pumped, and we delivered a record proppant intensity over those 35 stages.

The company will be targeting an IP30 flow test in April of this year, and following the 30-day flow test from SS-2, we will be moving to SS-3 to finish completion operations and target an IP30 flow test for SS-3 in June of this year. The company continues to make progress toward a final investment decision for the Shenandoah South Pilot Project. Over the quarter, we entered into binding agreements with the APA Group to support the build and construction of a 12 in pipeline connecting the SS pilot to the local 12 in pipeline to move gas from our pilot project to the local Northern Territory gas market, where we'll be producing 40 million cu ft a day over the next 15 years. First gas from this project remains on track to start in the first half of 2026.

Over the quarter, the company continues to make good progress around business development opportunities, including the progression of a data center strategy that we would envision being part of an expansion to our phase I development. I will talk in more detail around this later in the presentation. And finally, the company signed a non-binding MOU with the ASX-listed E&P company, Santos, around progressing technical studies associated with the expansion to the Darwin LNG project. The company ended the quarter with a cash balance of $59.4 million. This is following receipt of an R&D grant of $6.2 million, and the company remains fully funded to deliver IP30 flow tests from SS-2 and SS-3 through the end of June of this year.

Moving to slide four and more detail around the progression of our Shenandoah South pilot development, you can see by the map in the middle of the page, the company remains very focused around the million-acre development area that's highlighted in the structure map on the left in yellow. As you zoom down into the middle of that million-acre development area is our six-well pad, where we've now drilled two horizontal wells. These are the first two of six wells that we anticipate to develop our 40 million cu ft a day for this pilot development. You can see by the picture on the right, this is a snapshot of the new Liberty equipment that is currently on site and has been progressing the completion of our SS-2 and SS-3 wells.

Again, over the quarter, the company successfully drilled the SS-3H well to 21,169 ft, and we completed this drilling in 25 days. Again, that represents over 840 ft per day that was achieved on drilling performance and remains the fastest well that has been drilled in the Beetaloo Basin to date. We geo-steered the full 10,000 ft horizontal section within a 65 ft target, and what we saw within that 10,000 ft horizontal well was a high-quality, contiguous Middle Velkerri B Shale, and most importantly, no faulting. The company commenced stimulation operations on SS-2 and SS-3 in January of this year. On SS-2, we completed 35 frac stages across a 5,500 ft horizontal section and achieved Beetaloo Basin records for average proppant intensity across those 35 stages. On SS-3, the company took precautionary and proactive steps to pause completion operations based on a detection of stress in a casing connection.

Remediation activities on SS-3 are ongoing, and we are targeting a continuation of the stimulation program in the second quarter of this year. Overall, we'll be targeting IP30 flow rates from SS-2 in April of this year and an IP30 from the SS-3 well in June of this year, subject to weather conditions. Moving to slide five, the company continues to make significant improvements in drilling performance from our last well that we drilled over the quarter in SS-3. This well was drilled in 25 days at an average speed of 843 ft per day. That represents 43% faster than the SS-2H well.

In reference to the table on the bottom part of the slide, you can see the increases in performance we've made in SS-3, primarily driven by the section of the top hole to the Moroak section, where historically it's taken between 10 and 11 days to drill that section. Now, in SS-3, we drilled that section in less than five days. And in the horizontal section, where it took 17 days to drill in SS-2, we were able to drill in 12 and a half days. The total drilling cost for SS-3 is approximately $10 million, and the company has identified significant cost savings that will drive further reductions and increase drilling performance in our follow-on pilot development wells being drilled in the second half of this year.

Moving to slide six, one of the most encouraging elements of our two-well drilling program this year has been the consistency in the geology that we've seen in our two wells, SS-2 and SS-3, as it compares to the SS-1 pilot hole that is roughly three miles south from these two horizontal wells. We've seen very consistent quality and a very gentle, undulating structure across the full horizontal section with no faulting observed. In addition, we see very strong gas shows across both horizontal sections, which we believe will translate into very good productivity in our well test in both wells. Moving to slide seven as a summary of the stimulation campaign from SS-2 and SS-3. On our SS-2 well, we completed 35 stages with our new Liberty equipment that's currently on site.

This was done over a 5,500 ft section, and we were pumping a proppant intensity of approximately 2,700 lbs per ft. This represents a 26% higher proppant intensity than we pumped at SS-1H. Most encouragingly, 18 of the 35 stages, we successfully executed the full Tamboran V2 design of pumping greater than 2,800 lbs per foot and pumping in at 90 to 100 barrels a minute. We were also able to achieve five stages a day for the single well operation on multiple days, and this is in line with U.S. operational efficiencies. We're currently cleaning up the SS-2H well ahead of commencing an IP30 that will have a result to report to market in April of this year. On the SS-3 well, we took proactive and precautionary steps to undertake a remediation of a stress in a casing connection that was observed.

We anticipate this remediation to be resolved in the next 30 days ahead of recommencement of stimulation activities in the second quarter of this year. We see this as an opportunity to incorporate lessons from the SS-2H well to increase efficiencies and place a higher proppant intensity across the 60 stages that we plan to pump in SS-3. We'll be targeting an SS-3 IP30 flow test result in June of this year. Moving to slide eight and a summary of the completion designs between Shenandoah South 1H, Shenandoah South 2H, and Shenandoah South 3H. As you can see, we've had the opportunity to apply learnings from the SS-1H well into our recent SS-2H well that we're calling our Tamboran V2 design. This is a design where we pumped 35 stages at little over 2,700 lbs per ft, and we pumped 90 to 100 bbl per minute.

We are anticipating targeting IP30 flow test results of greater than 10.7 million cu ft a day. Again, we are targeting this IP30 flow rate by April of this year. We will have the opportunity to apply learnings from this SS-2H well into our SS-3H well, and we will have the opportunity to optimize this Tamboran V2 design, where we anticipate pumping 60 stages at greater than 2,800 lbs per ft and greater than 100 bbl a minute. We are planning to target IP30 flow rates of greater than 19 million cu ft a day for the Shenandoah South 3H well test that we anticipate in June. Moving to slide nine, we remain on track for delivering our SS pilot project by the first half of 2026.

The results of our two wells, Shenandoah South 2H and Shenandoah South 3H, will guide the number of wells that we will follow up and drill later this year that will deliver into a binding gas sales agreement of 40 million a day for 15 and a half years with the Northern Territory government. Over the quarter, we signed binding agreements with APA Group to deliver a 12 in pipeline that will connect the pilot project to the local Northern Territory pipeline called the Amadeus Gas Pipeline that will deliver this 40 million cu ft a day to the local Northern Territory gas market. We also commenced procurement of the 40 million a day facility. We'll be finalizing approvals for our Shenandoah South Pilot Project in the next few months ahead of a final investment decision that we'll look to take in mid-2025.

Again, our project remains on track to deliver first gas of 40 million cu ft a day in the first half of 2026. Moving to slide 10, as I mentioned in my opening comments, the company is looking at an opportunity to expand our phase I development to include additional gas supply that could feed into a data center strategy. You can see by the map on the left, Australia is becoming a major data center hub. Over 200 data centers are currently in Australia, and we believe the Northern Territory has the opportunity to be a growth area for new data centers, given the existing fiber optic cables that connect the Northern Territory within other areas of Australia, but most importantly, into Asia-Pacific.

These fiber optic cables run about 30 mi from our Shenandoah South pilot project, and we believe that this creates an opportunity to match gas from the Beetaloo Basin to feed into energy for new data centers being constructed in the Northern Territory. We have commenced commercial discussions with potential partners to develop multiple data centers in the Northern Territory, and we will be updating the market further as we continue to make progress on this strategy. Moving to slide 11, over the quarter, we also executed a non-binding MOU with Santos to evaluate an expansion to the existing Darwin LNG plant that Santos operates.

This non-binding MOU will consider technical studies to look at developing new supply from our jointly held EP 161 permit and connecting that to the Darwin LNG expansion, where we anticipate up to six million tons of new LNG capacity being built at Darwin LNG via brownfield expansion. We believe this creates a really great opportunity to potentially integrate this Darwin LNG expansion with our phase III NTLNG development. Moving to slide 12, the company ended the quarter with a cash position of $59.4 million. That includes $6.2 million that the company received via an R&D credit over the quarter. The company remains fully funded to deliver IP30 flow rates for our SS-2 and SS-3 wells. In addition, Tamboran is evaluating a range of options to fund the remaining wells in our SS pilot development and also associated infrastructure.

In addition, the company continues to explore potential farm-out opportunities to accelerate our phase II and phase III developments. These farm-out opportunities could include the drilling of additional wells to support reserve maturation to underpin infrastructure tied to phase II and phase III of our business plan. Moving to slide 13, you can see the upcoming catalyst starting in March, where we'll commence the flow testing of our SS-2H well and target an announcement on our IP30 from this SS-2 well in April. Following the well test of SS-2, we'll move to stimulate and flow test our SS-3 well and target an announcement on our IP30 flow test from SS-3 in June. In mid-2025, we'll look to take a final investment decision under our SS pilot program that will again target first gas from this pilot project in the first half of 2026.

Thanks very much, and I'll turn the call back over to the operator for our question-and-answer session. Thank you.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question is from Kalei Akamine with Bank of America. Please proceed.

Kalei Akamine (Senior Equity Research Analyst)

Hey, good morning, Joel and Eric. I guess, first off, between the pipeline lateral, the pilot, the MOU, the data center news, you guys have been really busy, and we like to see it. My first question is on the upcoming flow test, and maybe this is two parts. So first part, can you remind us why there's a gap between the completion and the flow test? And second, can you remind us what the normalized flow test was for SS-1? And I guess what I'm driving at is when you think of your target for SS-3 at 19 million cu ft per day, to us, it seems a touch conservative.

Joel Riddle (CEO)

Thanks very much for your question, Kalei. First, on the initial question on the time window between completing the stimulation on SS-2 and the SS-2 flow test, we are again in the process of cleaning up the well. We're going to be running in our 2 and 7/8 tubing, and we're going to be unloading the well in the next few weeks, and once we get gas breakthrough, we will start our IP30 in early March. That also includes a 10-day soak period, and that soak period is due to learnings that we picked up from SS-1, which is associated with having extended shut-in to allow our completion to continue to induce super highways within the shale. That's due to the highly desiccated Middle Velkerri shale that we've pumped our completion into, and so that extra 10 days has shown to have direct benefit from our SS-1 well.

So that's the extra time that we're taking before we initiate our IP30 flow test. As far as the conservatism that's built in, you're exactly right. If you extrapolate the productivity that we saw in SS-1 over the full 10,000 ft of the horizontal in SS-3, that's roughly about 19 million cu ft a day. So that's really what we're guiding toward. Obviously, as we have higher stimulated rock volume through increased proppant intensity that we've been pumping for SS-2 and expect to continue to pump in SS-3, we have the potential to see higher rates than that.

Kalei Akamine (Senior Equity Research Analyst)

Got it. I appreciate that color. The second question is on the Santos MOU. So our understanding is that Santos has a position in EP 161 where you guys are the minority partner, and that's different than where your pilot activity is concentrated in EP98. So my question is on the scope of the study. Are they trying to de-risk EP 161 before they move forward, or is de-risking your position in EP 98 sufficient to move forward with the MOU?

Joel Riddle (CEO)

Yeah, so really good question. We see the rocks between EP 161 and the pilot area on EP 98 being very similar in the deepest part of the basin. So you've got two depth centers, one on the east where the 161 block is focused, and then the second big depth center is on the west part of the basin. And so we have data from the last horizontal wells that had been drilled on EP 161 in 2021, in which we flow tested greater than 90 days on both of those wells. Really, that information guided us toward the SS-1 stimulation that we pumped last year. So we see a lot of symmetry between what we're doing on SS pilot program and the number of pilot wells that we're drilling this year being very similar to techniques that we would be working with our partner Santos on EP 161.

So in a lot of ways, we're able to de-risk the EP 161 opportunity through what we're doing on EP 98. This is part of cracking the code on the completion design. So as far as the NTLNG expansion that we're working with Santos, I think we're also keeping an open mind on where gas could be sourced to supply that expansion train. And that will be part of the study that we finished with Santos over the course of this year.

Kalei Akamine (Senior Equity Research Analyst)

What's the path forward for de-risking EP 161? What wells do they have planned?

Joel Riddle (CEO)

So we have an opportunity to drill additional horizontal wells in 2026. We're currently discussing two horizontal wells that will be drilled on EP 161 during 2026, and we hope to finalize that work program over the course of this year, hopefully by mid-year.

Kalei Akamine (Senior Equity Research Analyst)

Great. I appreciate that. Thanks, Kalei.

Joel Riddle (CEO)

I think the one thing I want to reinforce is that I think it's important that we bring along our partners early in the game so that when we think about a northern pipeline connecting the Beetaloo to Darwin, we do that in collaboration with all of our operators in the Beetaloo, and that's really the push by Tamboran to include Santos as part of their Darwin LNG expansion.