TEE granted first new NT gas permit in 10 years as Australian prioritises gas

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,631,250 TEE shares and 1,850,000 TEE options at the time of publishing this article. The Company has been engaged by TEE to share our commentary on the progress of our Investment in TEE over time.

The first NEW gas exploration permit in the Northern Territory in almost 10 years...

And it just got granted to our micro cap Investment Top End Energy (ASX:TEE).

The EP now means TEE has a block it can start working up - neighbouring $381M Tamboran Energy.

With the permit in hand, we can now look forward to a significant drilling event - just as Australia gets serious about securing new gas supply.

The next step is to run geophysics, release a prospective resource and start selecting targets...

That work is expected to start in Q3 of this year.

This morning the Minister for Mining, Education, Agribusiness and Fisheries in the NT announced the granting of a key exploration permit to TEE.

We think the news comes at the perfect time for TEE as the Australian Government recently outlined its “Future Gas Strategy”.

For years, the energy industry has been talking about how “transition fuels” like natural gas will play a big role in achieving net zero, together with solar and wind power.

Labour has been reluctant to include natural gas as part of Australia's net zero strategy...

Until last month when it released a medium and long term strategy that establishes the role that gas will play in the transition to net zero by 2050.

(Source - Department of Industry Sciences and Resources)

Now that the Australian government has formally recognised gas as a critical part of its energy transition plan.

(after two years of hard work and waiting... we think it is no coincidence that TEE was today granted the first exploration permit in ten years for the Beetaloo Basin - just four weeks after the Federal Gas Strategy was announced.

TEE is building up a portfolio of gas assets across three states - NT, WA and QLD....

We think that the political shift is a game changer for domestic natural gas explorers in Australia.

At a very high level, the strategy aims to:

1. Keep gas affordable for Australian users during the transition to net zero.
2. Retain Australia’s status as a reliable trading partner for energy.
3. AND the most important - make sure new sources of gas supply are discovered and brought online...

That last point is why we are Invested in TEE...

TEE for the past ~2 years have been firming up high impact gas drill targets across Australia, in the NT, QLD and in WA.

The NT assets were particularly interesting to us because of the work being done by majors including Santos and Origin Energy.

The majors have been drilling and running flow tests across the Beetaloo Basin for years now and have managed to attract commercial interest from American oil & gas billionaires.

The Americans know how to drill and commercialise unconventional oil & gas fields and so their entry into this part of Australia is good news for the smaller players operating there.

We think the external interest validates the potential for the basin...

While the majors and the US billionaire’s worked up their projects, TEE has:

1. The first exploration permit granted in 10 years - EP 258 (the permit that was issued today).
2. Purchased granted tenure from a Gina Rinehart subsidiary - Hancock asset with transaction due for completion in June 2024.
3. Three other existing exploration permits EP257, 259 and 261 pending permitting approval.

All of this means TEE can start working up its projects on the fringes of the Beetaloo and hopefully, identify some high impact drill targets.

It isn't just gas we want to see TEE discover either...

TEE has been doing a lot of work on the natural hydrogen and helium potential of its projects.

We are hoping that over the next 6-12 months, TEE can work up some big targets and set the company up for a potential company making drill event.

Why we like TEE’s exploration strategy

TEE has been following a slightly different exploration strategy to other oil & gas micro cap companies.

Rather than work towards one big drilling event, the company has worked up a number of different projects, trying to firm up POTENTIAL drill targets.

Here is how TEE is progressing each of its projects:

Usually a company will pick one project, do all the work, drill a well and cross its fingers.

TEE’s strategy is to rank targets first, then decide on which ones to drill later.

In Queensland, TEE has worked up its project by defining an independently certified prospective resource of 715 billion cubic feet (BCF).

Now the company is considering farm-down options to drill the project.

In the Northern Territory, TEE has increased its land position through a deal on granted permits with Gina Rinehart’s subsidiary Hancock Energy.

This new ground is in an area prospective for natural hydrogen and helium as well as gas... and it has pre-existing exploration permits in place too.

(that’s what we’ve been waiting for TEE to get for nearly two years now).

After today, TEE has now been granted EP258 which was always one of the key permits for TEE in the NT.

Here is what TEE’s ground looks like and where the permits are in place:

With these permits, and the acquisition set to close this month, TEE is in a position where it can start running geophysical surveys and work up the NT assets.

The next stage is to develop a “prospective resource” and identify some key drilling targets for the company.

TEE expects the geophysical surveys to start as soon as possible.

Our TEE Investment Strategy

We have been Invested in TEE for over two years now.

We first Invested in the seed rounds, then more at the IPO and more again in the recent 12c placement.

Permitting processes can take time, and TEE experienced some delays.

But with this important permit now secured, we expect an upcoming period of strong newsflow.

(And hopefully much more market interest in TEE)

Our plan is relatively straightforward and in line with our typical oil & gas Investment Strategy which is as follows:

• Invest early, as the company is in the early exploration work stage.
• Increase our Investment, as the company de-risks the project through permitting, geophysics and target generation.
• Top Slice, if the share price runs in anticipation of exploration results
• Free Carry, into results while still maintaining a large position to be leveraged for a discovery
• Evaluate our position post-drilling.

We haven't sold any of our TEE holding and plan to hold onto most of our Investment as TEE works up its projects and develops drill targets.

(the lead up to the exciting bit... drilling)

We will then look to de-risk our position (hopefully at much higher prices) as the company approaches a major drill program and interest in the company increases.

Here’s a very basic chart that shows how oil & gas exploration companies gain shareholder interest over time as they progress toward drilling:

Note: Chart shows overall market interest in the project, not share price. The share price could move down even if interest increases.

Investing in “Swing for the fences” drilling events are some of our favourite Investment types.

These are high risk, high reward opportunities that we follow over a long period of time, and it always gets more and more interesting the more milestones that the company completes.

We have been invested in TEE for over two years now and we are still early on in the oil & gas interest cycle.

After today’s news here is where we think TEE sits on that chart with its NT assets:

Our strategy is to hold our position into what we hope is a successful discovery which re-rates the company’s share price significantly higher.

And ‘top slice’ or ‘free carry’ our Investment, if the TEE share price runs along the way.

A commercial discovery is the fundamental reason why we are Invested in TEE and it forms the basis for our TEE Big Bet which is as follows:

Our TEE ‘Big Bet’

“TEE makes a new large scale gas discovery in Australia and becomes a takeover target from one of the oil and gas majors at 1,000%+ from our Initial Entry Price.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our TEE Investment memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Top End Energy
ASX:TEE

Australian domestic gas supply thematic in the spotlight

The domestic gas market in Australia is... heating up.

And we think TEE has secured this important permit in the NT at an excellent time - new gas supply has become a national priority.

Last month the Federal Minister for Resources Madeline King announced the “Future Gas Strategy”.

The strategy centres around six key principles:

1. Australia is committed to supporting global emissions reductions to reduce the impacts of climate change and will reach net zero emissions by 2050.
2. Gas must remain affordable for Australian users throughout the transition to net zero.
3. New sources of gas supply are needed to meet demand during the economy-wide transition.
4. Reliable gas supply will gradually and inevitably support a shift towards higher-value and non-substitutable gas uses. Households will continue to have a choice over how their energy needs are met.
5. Gas and electricity markets must adapt to remain fit for purpose throughout the energy transformation.
6. Australia is, and will remain, a reliable trading partner for energy, including LNG and low emission gases.

For junior gas explorers in Australia the key principle is #3 “new sources of gas supply are needed to meet demand during the economy-wide transition”.

Diving deeper into this, the report highlights that a critical supply gap is forecast to emerge in 2028 on the east coast and 2030 on the west coast of Australia if new supply isn’t developed.

Despite this, exploration and investment in the Australian gas industry has been low driven by a number of factors including project approvals, uncertainty over demand in a net zero world, government policy and project finance.

The Future Gas Strategy outlines a number of solutions to meeting this supply gap, with the first one being most relevant for prospective gas exploration companies:

“Meeting these supply challenges will need location-specific solutions including: maximising production from existing resources and developing adjacent new gas fields supplying the domestic market, provided environmental impacts can be managed.

Here is a snapshot of Australia’s natural gas resources (and opportunities) for new producing gas fields:

New gas fields, like the Beetaloo Basin are highlighted as “possible sources of additional domestic supply for the east coast market.

The Beetaloo Basin is a relatively new basin, an opportunity to supply the Australian domestic gas market.

Again, we think it is no coincidence that TEE was today granted the first exploration permit in ten years for the Beetaloo Basin (just four weeks after the Federal Gas Strategy was announced).

The government has highlighted its willingness to work with gas exploration companies to develop projects and TEE is a key beneficiary.

Although the domestic natural gas thematic is very strong for TEE, we think there is one other part of the story that the market may be currently overlooking...

TEE is also primed to explore for Natural Hydrogen and Helium

The main macro theme behind TEE is the growing demand for domestic natural gas.

Which has been in the spotlight over the last four weeks as the Federal Government announced the future gas strategy.

However, TEE has a secondary thematic that is emerging, which is the potential for natural hydrogen and helium at its project.

Since its IPO in 2022, TEE has added natural hydrogen and helium prospectivity to its existing portfolio of assets.

In February TEE announced the acquisition of the NT ground from Hancock Energy and specifically highlighted the prospect for natural hydrogen and helium over the project.

We think that the market hasn’t really taken notice of this development yet, and once the company finalises the deal (scheduled for this month) and works up the natural hydrogen and helium potential, investors may start to take notice.

(on that note, TEE just last week got consent from the NT Land Council to go ahead, a key condition precedent for the deal).

The Beetaloo Basin is known for its natural gas - and this is the focus of the majors working in the area.

However, we think that the natural hydrogen and helium story could be a potential unexpected upside for TEE if it is able to deliver some interesting targets to test and drill.

The market likes Australian Hydrogen/Helium stories too...

Gold Hydrogen, is an ASX-listed junior exploration company that made a natural hydrogen discovery in South Australia.

We have been watching the story unfold over the last 12-months since the company first made the discovery late last year.

Since then, the share price has moved from ~18c to ~$2.15 per share. A highpoint rise of ~1,000% post discovery.

Pre-discovery the company was capped at $26M, at its peak it was ~$343M.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

We think that the ASX investment community may be looking for the next natural hydrogen discovery...

And TEE could be the next play in this space.

Right now, TEE trades at a market cap of ~$11M, with $3.1M cash in the bank at 31 March 2024.

That means TEE trades at an enterprise value of ~$8M.

TEE is still a while away from drilling any well, but we think the risk/reward from current levels is interesting, especially considering the hydrogen/helium would be on top of its gas projects.

At this stage we are also waiting to see TEE firm up its hydrogen/helium plans...

What’s next for TEE?

Geophysical Surveys on EP 258 (Newly granted ground in the NT) 🔄

After today’s news, we want to see TEE get on the ground and run geophysical surveys.

TEE’s plan has always been to start by running a ~2,500 line kilometre airborne gravity survey AND at the same time look at whether the project has hydrogen/helium potential.

We are hoping that newsflow starts to roll in as soon as possible now that the permit is granted.

Complete the acquisition of the Hancock Energy assets 🔄

In TEE’s most recent quarterly the company confirmed that the deal to acquire Hancock’s assets in the NT was expected to be finalised “within the June quarter”.

This will be the next catalyst for those newly acquired assets.

Farm-down QLD gas project 🔄

TEE has previously said it’s plan for the QLD asset is to “Initiate a farm-down process for ATP 1069 with the aim of securing a joint venture partner”.

As a result we are looking for some sort of farm-out deal as the next major catalyst for that project.

What are the risks?

In the short term the key risk to our TEE Investment is still “permitting risk”.

TEE isn't doing any high risk exploration as yet across its projects BUT a big chunk of its ground is still under application in the NT.

There is always a chance TEE fails to get the permits and loses a large chunk of its landholding in and around the Beetaloo Basin.

If this were to happen we would expect TEE’s share price to re-rate lower.

To see other key risks we have listed, check out our TEE Investment Memo here.

Our TEE Investment Memo

In our TEE Investment Memo, you can find:

• TEE’s macro thematic
• Why we Invested in TEE
• Our TEE “Big Bet” - what we think the upside Investment case for TEE is
• The key objectives we want to see TEE achieve
• The key risks to our Investment thesis
• Our Investment Plan