TEE’s Beetaloo exploration permit could only be a few weeks away

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,725,000 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 Beetaloo Basin in the Northern Territory has the potential to solve Australia’s east coast gas crisis.

The basin is estimated to have enough gas to power Australia for up to ~300 years.

As an example of the calibre of global investors entering the basin, Texan oil and gas billionaire Bryan Sheffield recently invested a sizable $60M into Beetaloo Basin gas projects.

There’s a host of ASX companies actively exploring the basin, and with that comes plenty of drilling activity.

The capital pouring into the region is good news for our domestic gas exploration Investment Top End Energy (ASX:TEE).

TEE holds a 50% interest over ~166,000km^2 of exploration permit applications in the NT, with some of this ground sitting on the basin margin edges of the Beetaloo Basin.

Here, at the edges of the basin, TEE is looking to see if the Beetaloo formations extend to the previously overlooked acreage on the fringes.

If TEE is right in its exploration theory, it will change the game in the basin, and being a first mover, it could result in a large re-rate for TEE.

However, at this stage it is an unproven theory that needs to be tested with the drill bit.

This is frontier exploration, with all the risks and rewards associated.

Drill testing TEE’s theories is still some time away as its NT exploration permits are still going through the application process.

The exploration permits need to be granted before the company can begin any on the ground exploration work.

We expect an outcome on one permit in the coming weeks.

Yesterday, TEE announced that the final native title meeting for its highest priority exploration permit, EP 258, was set for mid-March.

These native title meetings are particularly important because they are a precursor to the exploration permits being granted.

After the upcoming rounds of meetings, TEE expects its highest priority EP 258 permit to be granted...

We think the granting of TEE’s first NT exploration permit (EP 258) could be a catalyst for the stock, given it will allow field work to begin on its NT ground.

Given its NT exploration permit applications are still pending, TEE is at an early stage in its exploration - and the market is valuing it accordingly - TEE has a $14M market cap.

While TEE waits to start exploring its NT ground, it's our view that the work being done by other ASX Beetaloo Basin stocks will increase the look-through valuation of TEE’s ground.

Other explorers in the region trade at market caps in the hundreds of millions of dollars.

TEE is capped at just $14.6M, has $4.3M in cash meaning it trades with an enterprise value of $10.3M.

While it goes through the permit application process in the NT, TEE has been progressing its already granted Queensland project.

Here, TEE has defined a 715 billion cubic feet prospective resource.

TEE is about to kick off a 2D seismic acquisition program and armed with this data, TEE expects to make a drilling decision in the second half of this year.

In summary, TEE is progressing three projects concurrently in the north of Australia, steadily bringing them up to drill ready status:

1) Queensland gas project - A 715 bcf prospective resource target, 2D seismic acquisition planned in Q1-2 2023, with drilling decision expected later this year. This target is the closest to being “drill ready”.

2) Northern Territory gas projects - TEE holds ground totalling ~166,000km2 in the NT. Applications are pending for ground on the perimeter of the Beetaloo Basin. Meanwhile the activity in the basin heats up.

3) Natural hydrogen & helium prospectivity - TEE is also looking to see whether its projects have exploration potential for hydrogen and helium, in addition to natural gas. These are gases that are hot topics right now, so it makes sense TEE is examining its portfolio of assets for prospectivity here.

Near term events for TEE - while it builds to drilling

In the short term, we are watching for TEE to complete the following:

1. Queensland: Land access ahead of a 2D seismic acquisition program.
2. Northern Territory: Permit granted at its high priority EP 258 - ahead of a gravity gradiometry survey.
3. Natural Hydrogen and Helium: Updates from the company’s desktop assessments.

Our Investment Plan

We Invested in TEE prior to the March 2022 IPO, well ahead of any major catalyst like a drilling event.

This is typical of the Investment approach we follow for high impact oil and gas explorers like TEE.

We have been Investing in large scale oil and gas exploration projects for decades, and from experience, we have had the most success when we Invest at least a year before any major drill program.

Patience is required, as this gives time for impatient stale shareholders to sell out and for the shareholder register to churn for a while as longer-term investors get positioned.

Usually, this leads to a base forming in the company’s share price.

In the final ~3 months prior to drilling, investor interest increases, and very few sellers are left, creating a lack of supply (in shares).

Usually, the last few months before a major drill program coincides with a run in the company’s share price, and this provides an opportunity to de-risk some of our position going into the drill program.

This is the plan anyway, but of course, when investing in micro cap ASX stocks, anything can happen.

We think TEE is still a while away from its first major drill program, however everything is falling in place nicely for our Investment Plan to eventually play out.

Having held TEE for over a year, by the time a major drill program comes around, we think the shareholder register will have churned enough for a pre-drill run up to occur.

TEE team assembled

Over the last six months, we have seen TEE assemble a team that has previously grown junior explorers into much larger capped developers.

TEE’s new appointments were Dr Mike Fischer and Marshall Hood. Combined, the two have almost 60 years of experience in the oil and gas sector.

The pair took a small private explorer Ophir Energy to a $1.28BN IPO on the London Stock Exchange in 2011.

And now they are at TEE.

At Ophir, Dr Fischer saw exploration success on 21 out of 26 wells, for discoveries totalling over 1 billion barrels of resources net to Ophir.

Not a bad hit rate.

He was also with Ophir when the company sold 20% of its Tanzanian gas discovery for a lazy US$1.3 billion.

Marshall Hood was also a part of the Ophir team and over his career has been involved in 15 trillion cubic feet (TCF) of gas discoveries across multiple projects to date.

We are hoping this duo can bring some of the experience and well established networks picked up during their time at Ophir into TEE.

Remember, TEE currently trades with an enterprise value of just $10.3M, and has assembled a team with a strong track record to lead its exploration programs.

TEE is now in a position where the majors are pouring hundreds of millions of dollars into the NT.

TEE is ready to begin exploration work at its Queensland project, with 2D seismic to be acquired in the coming months.

With its team strengthened, we are looking forward to TEE making a decision on its first drill program in the second half of this year.

This brings us to our “Big Bet” for TEE:

Our ‘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.

To monitor TEE’s progress since we first Invested and track how the company is performing relative to our “Big Bet”, we maintain the following TEE “Progress Tracker”:

See our TEE Progress Tracker here:

More on TEE’s Queensland project

TEE’s Queensland project sits ~50km to the west of the Gilmore Gas field which was a previously producing oil and gas project that has been on care and maintenance since 2001.

There was some drilling over the permit area back in the 1980s and some seismic shot, however the project has never seen any modern exploration work and hasn't been drilled for decades.

What TEE has already done:

TEE started by reprocessing the historic seismic data, which delivered three high priority drill targets.

This target generation work led to TEE defining an independently certified prospective resource of 715 billion cubic feet (BCF) from a single target - the Coolibah prospect.

What TEE plans to do next:

TEE is now looking to secure land access agreements which will allow the company to kick off an updated 2D seismic acquisition program of up to 120km.

It is no surprise that TEE will run the new seismic acquisition program in and around the area where the prospective resource sits.

Ultimately TEE will put together the new and existing data to find the best place to drill and improve its chance of success when it comes time to drilling a well.

TEE expects to make a decision on the drill program in H2 2023.

Texan oil and gas billionaire betting millions on the Beetaloo

A large part of our Investment thesis for TEE was that it had early stage prospects in an area that could be one of Australia’s next gas production hubs.

Our theory has always been that while TEE focuses on getting its tenements granted, all of the capital being invested in the region by the majors will prove the commercial viability of the region and, in turn, increase the value of TEE’s permits.

Come time for TEE to drill its projects, its ground will be more attractive for investors looking for exposure to the Beetaloo and its surrounding prospects.

Towards the end of 2022, we started to see the first major shifts in the region with mergers and acquisitions amongst the region's major players & new international capital.

The notable deal was Tamboran Resources' acquisition of Origin’s projects in the Beetaloo.

Tamboran raised $195M to fund the buyout and attracted a direct $30M placement from Bryan Sheffield, the Founder, Chairman and CEO of US unconventional E&P Parsley Energy, which was acquired by Pioneer Natural Resources in January 2021 for ~US$7.5 billion.

Mr Sheffield effectively invested $30M of his own money into Tamboran and then another $30M for a 38.75% interest in the assets acquired from Origin.

Alongside Mr Sheffield, Tamboran also attracted a $22M investment from one of the largest onshore drillers in the US (H&P).

With heavy hitters like Sheffield and H&P throwing sizeable cheques into the Beetaloo Basin, we think the region is finally getting international recognition as a prime investment location by experienced oil and gas industry players.

Ultimately, we view this flow of capital into the region as good for TEE, as eventually the capital will start to trickle down into the juniors with ground in the area.

The latest exploration update in the NT

A large part of our Investment approach to TEE has been to Invest and patiently hold as the majors in the NT de-risk the region.

In the background, TEE would get its permits granted and slowly work them up to being drill-ready prospects - by which time we hoped the permits read-through valuation would be much higher because of all of the development completed by majors.

As a result, we are always tracking the major's activities in the region.

Below is our latest take on the region.

Tamboran Resources (38.75% - capped at $304M), Bryan Sheffield (38.75%) and Falcon Oil and Gas (22.5% - capped at $178M)

What they are doing: Stimulation and flow testing of a single well (Amungee 2H)

When it is happening: Q1-2 2023.

Updates since our last note

As mentioned earlier in today’s note, a large focus for the joint venture between the three parties was the acquisition of Origins projects in the basin.

While the acquisition was ongoing, Tamboran and its partners finished drilling the Amungee 2H (A2H) reaching a total depth of 3,883m.

Now the partnership is completing stimulation work.

After completing the stimulation and four weeks of flowing back stimulation fluid, the partnership plans on installing production tubing and running a 30-day production test.

Results from the production test are expected in Q2-2023.

Santos (75% - capped at $23BN) and Tamboran Resources (25% - capped at $304M):

What they are doing: Two well long-term producing testing.

When it is happening: Suspended now, no plans for 2023.

After completing production tests across two wells for most of 2022, the joint venture between Santos and Tamboran suspended operations in the December quarter.

No work is expected on these projects in the 2023 calendar year.

Tamboran Resources (100% owned permits - capped at $304M)

What is it doing: Drilling of Maverick-1 well.

When it is happening: Completed

Updates since our last note

Across its 100% owned permits, Tamboran completed the Maverick-1 well, reaching a total depth of ~3,050 metres in 18.3 days.

While Tamboran intersected multiple reservoir units with strong gas shows (consistent with nearby wells), the well was cased and suspended for fracking works to be done at a later date.

We suspect Tamboran decided not to go ahead and production test the well because its focus was on corporate activity for the last few quarters.

Empire Energy (capped at $140M)

What is it doing: Drilling of Carpentaria-4V (C-4V) appraisal well, Flow testing Carpentaria-3H (C-3H) & Carpentaria-2H (C-2H)

When it is happening: Now.

Updates since our last note:

Since our previous update, Empire finished drilling Carpentaria-4V and then plugged and abandoned the well so that it could be re-entered in the future.

The purpose of this drill program was to increase the company’s overall resource numbers basin-wide.

At the same time, Empire also drilled the record breaking Carpentaria-3 horizontal well where it is currently running a flow test.

The well is officially the largest drilled in the basin after the company completed a 40 stage hydraulic stimulation process (fracking).

As of the company’s December quarterly, ~17% of fracking fluids had been recovered and the well was flowing back ~1,500 barrels of water per day.

Empire expects to announce gas flow rates from the C-3H well inside this quarter.

With it being the largest well drilled, there is a chance the company produces record flow rates for the basin. We think that could be a regional catalyst to bring more domestic and international eyeballs (and wallets) to what is happening in the NT.

We will be monitoring the results of Empires flow test closely.

After the work at C-3H is complete, Empire plans on going back and production testing the C-2H well.

What’s next for TEE?

Permitting in the NT 🔄

Yesterday TEE announced that final native title meetings for its high priority EP 258 permit are set for mid-March, after which TEE expects the permits to be granted.

Initially, TEE had expected this to be arranged in late 2022 after reaching an in-principle agreement with most of the native title holders.

We are hoping that in principle agreement is agreed to and the permits are granted this month.

Seismic data acquisition program in Queensland 🔲

TEE is currently working on securing land access agreements for its project ahead of a planned 2D seismic acquisition program over its Queensland project.

We covered this news in a recent Quick Take which you can see here: New seismic acquisition program over 715 bcf gas target in QLD

Natural hydrogen/helium prospectivity assessments 🔄

Late last year, TEE kicked off a project wide review to see if its projects had natural hydrogen/helium potential.

See our Quick Take on that news here: Testing for natural hydrogen & helium prospectivity

We are hoping to see some newsflow on this front over the coming months.

Our TEE Investment Memo

Below is our TEE Investment Memo where you can find a short, high level summary of our reasons for Investing.

The ultimate purpose of the memo is to record our current thinking as a benchmark to assess the company's performance against our expectations for the following 12 months.

In our TEE Investment Memo, you’ll find:

• Key objectives for TEE for the coming year (as of May 2022)
• Why we are Invested in TEE
• What the key risks to our Investment Thesis are
• Our Investment plan