Tamboran Resources Ltd

ASX:TBN

Earnings Call Transcript

[Operator]

Thank you for standing by, and welcome to the Tamboran Resources First Quarter Fiscal Year 2025 Conference Call. [Operator Instructions] I'd now like to turn the call over to Joel Riddle, Managing Director and CEO. You may begin.

[Joel Riddle, executive]

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 3 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 Beetaloo 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. And again, the SS-3 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 frac equipment from the U.S. into the Beetaloo Basin, ahead of stimulation of our 2 wells planned for early first quarter of 2025. And 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, and we hope to have Phase 1 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 $82 million, about $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 $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 as a summary, 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 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 been arrived -- that has arrived on site and also the area on the northwest corner of the pad reserve for our compression facility that we plan to commission during the year of 2025. As I said upfront, the SS-2 well was spudded on in late August, and 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 target in the Beetaloo Basin to date. Prior to running our 5.5-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 depth 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-2 H where we exceeded 580 feet per day as compared to approximately 370 feet a day in SS-1H. And 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 and SS-2H compares quite favorably to the 2 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 6, again, a comparison of the 3 wells that we've drilled over the last 6 months. And I want to highlight the key successes and lessons learned from each of these wells, particularly focusing on SS-2H. First as 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 geosteer 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 nonproductive 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. So that improved mud system allowed us to save quite a few days of 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 within 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 that consistency in the geology as compared to what we saw at SS-1H well. Again, 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 and 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. So 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 sand boxes. And 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 to 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 $4.5 million to approximately $0.5 million per well. So in other words, we have an opportunity to reduce the overall well cost for our 2025 program and beyond at approximately $4 million for each well.

Moving to Slide 10. Our current cash position as of the September 30 of this year is approximately $82 million. You can see we started the quarter with a cash balance of $75 million, an additional $7.4 million incorporating the greenshoe post our IPO in late June. We've had approximately $19 million in cash that's gone into the ground for the drilling of our 2 wells. In addition, we had net proceeds of $7.6 million from the sale of a U.S. rig that we've been marketing for the last few months. And that $7.6 million of net proceeds, again, more than offsets the $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 2 wells that we anticipate announcing to market in late first quarter of 2025. And 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 2 wells in the first quarter and currently on track to announce our IP30 flow rate results from these 2 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. And 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 a Q&A session from here. Thank you.

[Operator]

[Operator Instructions] Your first question today comes from the line of Charles Meade from Johnson Rice.

[Charles Meade, analyst]

Joel and Eric, thank you for staying up late to do this call your time. So I wonder if you could talk a little bit more about where in the hole you had a mechanical problem. And it sounds like this is kind of a known problem with the known solution given your success in redrilling this, but I want you to kind of tell a little bit more about it and what you're going to -- what you guys have done differently on the side track.

[Joel Riddle, executive]

Yes, sure. Thanks for your question, Charles. As I mentioned in my opening remarks, we were -- 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 had a tight spot at approximately 4,000 feet. That tight spot resulted in us increasing the amount of torque that we saw in the drill string and we ended up parting that drill string again at around 4,000 feet and that drill string in total was around 800 feet. So there was 800 feet of drill string that we left in the hole.

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, as I mentioned, we felt like mud integrity contributed to the sticky spot that we saw as we're coming out of a hole. And so 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. And that greater mud integrity, I think, is already showing some benefit.

So big picture, as you look at a lot of the shale basins that have been developed in the early stages here in the U.S., there's in any of these early drilling situations that we currently are in, in the Beetaloo, there's optimizations that you're -- you're constantly working through, everything from well design to mud systems. And -- 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 make some adjustments going from SS-2H to the sidetrack well.

And just to give you kind of a sense, we were averaging around 530 feet per day in the SS-2H well. In the SS-2H sidetrack well, we're averaging about double that, that kind of penetration rate per day. So we feel pretty good about the upgraded mud system. That doesn't mean we're not going to continue to evaluate. We're already looking at ways to further optimize the mud system from the results that we're seeing in the side track.

So I'll stop there. If there's any further questions on this, I'm happy to take any follow-up.

[Charles Meade, analyst]

Yes. That's great detail, Joel. And then in your prepared comments, you mentioned the completion timing being weather permitting. I'm guessing that seasonal rain, but maybe you could just tell us what the variables are there.

[Joel Riddle, executive]

Yes. So in the Northern Territory, you do have a rainy season that is generally from late November to sort of the end of March is the window. I guess the thing that we have, as a company, been able to I would say build as a core competency as 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. So our guys out there in the field, are well equipped to accommodate sort of the operational requirements around completion.

It's not ideal. We much prefer to be pumping our completion during the dry season, but where we are today, we're making necessary adjustments. Things like making sure the sand stays dry. That's the main thing, not having to deal with the wet sand. We're also, again, working very closely with Liberty. I think having the increased -- their equipment out there in the field, I think, is going to always help our ability to have efficiencies across pumping these 2 -- pumping the completion for these 2 wells.

[Operator]

Your next question comes from the line of Kalei Akamine from Bank of America.

[Kaleinoheaokealaula Akamine, analyst]

Obviously, a sidetrack here is an 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 2 mud systems and whether what you're seeing so far puts downward pressure on your ultimate well cost?

[Joel Riddle, executive]

Yes, it's a great question, Kalei. Look, as I mentioned, we're able in the sidetrack well to have an increased efficiencies. We're seeing kind of above 1,000 feet per day compared to 530 feet a day that we saw in the SS-2H well. So the sidetrack, we're doing a lot better with the new mud system. The change of the mud system is -- 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. So 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.

And I hope that, that will continue the more wells we drill. So -- that's what other operators in the U.S. have seen, the more wells you drill, the more efficient you are. And I think that same thing is going to occur here in the Beetaloo as we drill more and more wells.

[Kaleinoheaokealaula Akamine, analyst]

For sure. You guys will definitely get better with more [indiscernible]. Maybe you can talk a little bit about the cash [indiscernible] 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?

[Joel Riddle, executive]

Yes. So we've completed FEED work on the compressor facility that is -- 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. So that is currently in process. We're right on track to deliver that. One of the opportunities we're working on today is sourcing necessary midstream capital to -- as we get into the chunkier capital requirements coming into next year. So those are things we're working on. We'll have some further announcements on that in future earnings calls. But everything is going as planned as we speak.

[Operator]

[Operator Instructions] Your next question comes from the line of Anish Kapadia from Hannon.

[Anish Kapadia, analyst]

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 plans for the Middle Arm and how that's progressing. And I suppose related to that, the NTLNG, any kind of progress or updates you have any of that over there. And then secondly, I was just wondering if there's also any updates in terms of the checkboarding of acreage when you're expecting to finalize that and the potential impacts over there?

[Joel Riddle, executive]

Yes, 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. That is continuing. They expect to reach a final environmental assessment being completed by the end of 2025 is our target from where I can kind of, from my perspective, they are on track to deliver on that time line. And we've had a new government come into power in the Northern Territory, Country Liberal Party for everyone, not familiar with the terms. In Australia, Liberal Party means right of [indiscernible], and 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. So we -- I think we have very strong support at the local Northern Territory level. You also remember that the federal government has committed AUD 1.5 billion or USD 1 billion for the Middle Arm project that will go toward common user infrastructure.

So we enjoy both 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 a position to move to FEED for NTLNG. And so we'll be working on FEED in the second half of next year through middle of 2026, and there is where we would line up the environmental approval, hopefully, we will be in place from the Middle Arm.

We'll have our FEED study completed. We'll have the drilling of our 6 pilot wells with long-term flow test 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.

As far as the checkerboard is concerned, we are in commercial discussions with our partner, Daly Waters Energy. That's the company led by Bryan Sheffield. So 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.

[Operator]

And that concludes our question-and-answer session. I will now turn the call back over to management for final closing remarks.

[Joel Riddle, executive]

Well, thanks very much for everyone joining this morning, and we look forward to updating the market further in the next 3 months ahead. If there's any questions that anyone has as a follow-up, please reach out to the company, and we'll reach right back out to you. So thanks very much.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.