EXR increases contingent resource by 328%

Published 28-MAY-2024 10:05 A.M.

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Yesterday our 2019 Energy Pick of the Year Elixir Energy (ASX:EXR) put out an upgrade to its contingent resources at its QLD gas project.

EXR announced that its 2C contingent resource has increased from 395 to 1,297 billion cubic feet.

A contingent resource is an evaluation of a company discovered recoverable oil or gas that are not yet able to be pulled out of the ground economically.

Resources are used to value a project’s existing and future economic potential, the bigger the resource, the more economic potential for the project.

EXR’s project is located in the Taroom Trough in the Bowen Basin next to oil and gas supermajors Shell, Santos and Omega Energy.

EXR’s initial contingent resource was already in place when EXR picked up the project in 2022.

This 2C contingent resource gave EXR a platform to begin its drilling program, Daydream-2.

The goal of the program was to materially upgrade this contingent resource in anticipation of a flow test in the future.

With yesterday’s news, we believe that EXR has done this. Almost quadrupling the size of its 2C resource.

Importantly, this resource upgrade doesn’t include the prospective coal resources… so there is more room for the resource to grow.

When EXR drilled its Daydream-2 well late last year it managed to discover a conventional gas section.

This was a surprise to the upside for EXR and shareholders.

A quick gas extraction lesson, conventional gas is free flowing gas that is trapped underground, unconventional gas is stuck gas that is trapped in coal beds that requires fracking to flow.

The more desired type of gas is conventional gas, and you can read more about this discovery here: Did EXR Just Unlock Another Australian Deep Gas Play?

Soon, EXR will undertake a flow test to evaluate the flow rate in the unconventional part of the well, and we will be able to get a fuller picture of the size of EXR’s gas resource.

With all of the information in hand EXR will have optionality in how to develop the project in future - whether that is to sell to a neighbouring major or develop the asset themselves.

Australian, domestic gas supply is on the agenda too.

In March this year the Australian Energy Market Operator (AEMO) warned of gas shortages from 2028 due to plunging gas production:

(Source)

Furthermore, Australia’s “future made in Australia” plan as outlined in the recent Federal Budget will need more gas according to Energy Producers Australia:

The Australian government recently published the Future Gas Strategy which includes:

Gas must remain affordable for Australian users throughout the transition to net zero.
AND New sources of gas supply are needed to meet demand.

Clearly, gas is going nowhere in Australia, and EXR can take advantage of the improved and more streamlined path to production that the government is looking to encourage.