Tamboran Resources Limited (ASX:TBN) CEO and Managing Director Joel Riddle and Corporate Connect Research Senior Equities Analyst Richard Close discuss the valuation of the company and the Beetaloo Basin, which could have enough gas to supply the domestic market on the east coast of Australia for the next 200 years.Lauren Hayes: I’m Lauren Hayes for the Finance News Network, and today’s episode of Stock Watch looks at Tamboran Resources
(ASX:TBN). Stock Watch highlights compelling market opportunities and provides a unique conversation with company CEOs and research analysts. Tamboran Resources is a natural gas company focused on developing unconventional gas resources in Australia. We are talking to Tamboran’s Managing Director and CEO Joel Riddle about the company’s project in the Beetaloo Basin and Corporate Connect’s analyst Richard Close, who has put a $1.10 price target on the company.
Joel, welcome back to the network. Firstly, what makes the Beetaloo Basin so compelling for Tamboran?
Joel Riddle: Look, the Beetaloo Basin is one of the largest untapped gas resources here in Australia. Over $300m has been spent into the basin to date, and what those wells have shown is a shale that looks very similar to the Marcellus Shale, the most prolific shale basin in the world. So, the first thing that really attracts Tamboran to this opportunity is the quality of the rocks. In addition, it's all about the scale as well. So, the gas sitting in the Beetaloo Basin is enough gas to supply the domestic market in the east coast of Australia for more than 200 or 300 years. So, it's tremendous amount of gas sitting in the basin that has this potential to really answer a lot of the gas shortfalls that are emerging.
Lauren Hayes: What does your US oil and gas industry expertise bring to drilling at the Beetaloo Basin?
Joel Riddle: Look, myself and my operating and technical team indeed have a lot of US experience and very specialised experience. Our guys have drilled over 5,000 shale horizontal wells in all the key shale basins in the US. And what that experience really points to is our ability to drill wells faster, being able to design our wells to have very high production rates and recoveries per well, which translates into great economic value.
Lauren Hayes: TBN’s shareholder register includes the likes of US oil and gas billionaire Bryan Sheffield, who's also a JV partner. How did this strategic investment come about?
Joel Riddle: Look, Bryan is someone that we've known for quite some time. He's very well known in the US through his successful early-stage business Parsley Energy that was very, very successful in developing the Permian area in Texas in the US. And so, through our networks of both myself and our chairman, Dick Stoneburner, who's based in Texas, we became aware and developed a relationship with Bryan over the last few years. What attracted, I think, Bryan to this opportunity is the quality of the rocks, the potential to replicate this high-growth business plan that he was very successful in implementing in the Permian Basin. And we couldn't be more excited to have Bryan both as now our largest shareholder and also our JV partner.
Lauren Hayes: Another strategic investor of Tamboran from the US shale gas industry is Helmerich & Payne, who are the largest provider of onshore drilling solutions in the US. This will give TBN unprecedented access, in Australian terms, to high-power drill rigs. Can you talk more to the strategic value?
Joel Riddle: Yeah. Helmerich & Payne, as you mentioned, is the largest rig provider to all the large shale operators in the US. But, importantly, they are the most technologically advanced rig company. And so they're currently producing one of the most technologically advanced rigs worldwide. It's called the Flex3 Rig. This rig is over 2,000 horsepower. It's going to include a million-pound hookload. To put that in perspective, that's about 80 per cent more powerful than the largest rig currently working in Australia today. And these rigs will allow us to drill much faster wells and more cost-effective wells. And so it'll be key to unlocking the commerciality in the Beetaloo. In addition, this will be the first of five rigs that we'll be working with H&P on over the next three to five years as we ramp our production rates up in the basin. We have potential, we think, to produce over a thousand TJs a day. Having the right kind of equipment that can drill wells fast and efficient and having that backlog of additional rigs is really the key to the company's ability to ramp up gas production as quickly as possible. So, we couldn't be more excited to have H & P as our strategic partner. In addition, they invested 22 million into our recent capital raise, so they have very strong alignment with the company as it looks to grow over the next few years.
Lauren Hayes: Joel, thank you for your time.
Richard, welcome to the network.
Richard Close: Hi, Lauren.
Lauren Hayes: Firstly, you have a 12-month target price of a $1.10 on TBN, which is significantly higher than where their stock is currently trading. How did you get to this valuation?
Richard Close: Okay. So, it's a fair question. It's a big target price. I mean, we're over 500 per cent from the current share price, and that's probably quite unusual in this day and age, but I think it should be born in mind that the Beetaloo Basin is a big prospective project for Australia, and Tamboran holds the major position in that basin.
So, the valuation is really based around the MPV valuations of two components of Tamboran's stated strategy, which is, number one, their 100-terajoule-a-day pilot plant, which they want to get in operation by 2025, and then a much larger LNG export project, which will encompass, I guess, a full-field development across the Beetaloo Basin.
So, risking it appropriately for chance of commercial success, we've got 35 cents a share for the pilot plant and $1.12 a share for the LNG development. And that's been discounted back to today.
The other two significant components of the valuation are their other exploration permits. So, their 25 per cent working interest in EP 161, which they hold alongside Santos
(ASX:STO), who is the operator. We have around about 37 cents a share for that. And then EP 136, which is the 100 per cent-owned permit, where we have a valuation of around about 97 cents a share. So, in the context of the stock trading at around about the early 20 cents a share at the moment, you can see these valuation… of even all four projects are pretty significant.
Lauren Hayes: And where are the risks to your valuation?
Richard Close: Yes, Lauren, there will be significant risks over time, and obviously the primary one in my mind is going to be commodity prices. Commodity prices, particularly energy prices over the last 18 months, have been incredibly volatile, and I think, you know, you've always got to have that in the back of your mind. Having said that, we've used some pretty conservative assumptions in our MPVs. We're using A$11.50 a gigajoule for the domestic project and A$13.50 for the LNG project. So, I think we are conservative there. There's always going to be geological risk given the fact that this project has not been drilled out to any great detail yet. I think you could probably point to five or six wells here being able to give some pretty good indications of consistency across the reservoir, but we need to see more wells to be more comfortable with that. Having said that, with shale gas projects, it's different to what Australia is used to with conventional gas projects. Infrastructure risk is obviously something which people are often concerned about in Australia. Having said that, they signed, I think quite cleverly, a 100-terajoule-a-day MOU with Jemena on the Northern Gas Pipeline, which runs right past their front door. And, you know, it's a fact that in all of the major hydrocarbon projects that we've seen in this country, it's a real build-it-and-they-will-come mentality. Infrastructure has always been able to get gas to market for our significant projects. And then, finally, there's a technical risk, and that is really around the completions that occur with the lateral wells. They require a consistent level of learning. Each well teaches them a little bit more how to complete the well even better, how to undertake the hydraulic fracturing. So, there's risk around that, but we'll get more comfort with that as they drill more wells.
Lauren Hayes: Richard, thank you for your time.
Richard Close: Thanks, Lauren.
Lauren Hayes: You can read the full research report on the Corporate Connect website under “
Reports”. I’m Lauren Hayes. See you next time.
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