Elixir Energy - Drilling Success Highlights Potential for Major New Gas Play in Australia's Bowen Basin

• Elixir Energy is actively exploring natural gas in the Bowen Basin in Queensland, Australia and has made promising discoveries in its recent Daydream-2 well.
• The Daydream-2 well encountered an unexpected 20-meter thick permeable sandstone interval from 4,200-4,220m depth that flowed gas in addition to the expected tight sandstones and coal seams.
• Elixir will be conducting an extensive well-testing program this year to determine the commercial flow potential of the various reservoir zones encountered.
• In addition to 400 BCF of 2C contingent gas resources already booked, Elixir estimates 3.6 TCF of prospective coal seam gas resources across its acreage.
• With several other companies also actively exploring the basin, the Bowen Basin is a large gas province in Australia.

Australia-based junior explorer Elixir Energy (ASX:EXR) is on the cusp of potentially defining a major new natural gas play in the Bowen Basin of Queensland. With energy security concerns rising globally and strong regional demand growth projected for natural gas, Elixir's recent drilling success at its 100%-owned Bowen Basin project puts it in a strong position to create significant value for shareholders in the near term.

Bowen Basin Emerging as Major New Gas Province

The Bowen Basin has long been recognized by the industry as highly prospective for natural gas but has remained relatively underexplored compared to Australia's main producing basins. That is starting to change, with Elixir Energy and several other companies now actively exploring the basin.

Major operator Santos and supermajor Shell are drilling wells on adjacent acreage, while junior Omega Energy is also preparing to drill later this year. In addition, Origin Energy is evaluating the potential for carbon capture and storage in the basin, adding to the buzz around the Bowen. As Elixir Managing Director Neil Young recently stated, there is currently "a lot of activity going on in about a couple hundred square kilometers" of the basin.

This emerging industry focus on the Bowen is driven by the basin's highly prospective geology and proximity to infrastructure and gas markets. The Bowen contains the same Permian-age source rocks and sandstone and coal reservoirs that host major gas accumulations in the Cooper Basin to the south. And unlike more remote frontiers, the Bowen offers ready access to the East Coast gas market via existing pipeline infrastructure.

Promising Results from Daydream-2 Well

Elixir Energy has established an early mover position in the Bowen, having acquired over 10,000 sq km of contiguous 100%-owned acreage across the basin. The company's recent Daydream-2 well, drilled in late 2023, made several encouraging discoveries that bode well for the commercial potential of its acreage.

The most exciting result was the encounter of an unanticipated 20-meter thick zone of permeable sandstone from 4200-4220m depth that flowed gas to the surface. According to Chief Geoscientist Greg Channon, this was "most unexpected at those kinds of depths" and highly promising, as "it showed that gas can enter the wellbore and flow at these depths" without hydraulic stimulation.

Detailed analysis indicates the porosity and permeability of these deep sands have been preserved due to clay coatings on the sand grains - a feature seen in other prolific deep gas plays around the world but never before in the Bowen.

As Channon explains, "This clay coating prevents subsequent cementation as the sands turned into rocks... it's quite unique and very special."

In addition to this permeable zone, Daydream-2 intersected nearly 300 meters of tight sandstones and coals that appear gas-charged based on logs. Gas desorption measurements on coal cuttings also indicate significant volumes of gas remain absorbed in the coals - another positive sign for future production.

Elixir had already booked a contingent resource of 400 Bcf of natural gas around its earlier Daydream 1 well. But based on the results of Daydream-2, it now estimates a mean prospective resource of 3.6 Tcf across its Bowen acreage. While still speculative, this points to the potential for the Bowen to emerge as a major new source of gas supply down the road.

Interview with Chief Geoscientist, Greg Channon

Testing Program to Determine Commercial Flow Potential

The next step for Elixir is to demonstrate the Bowen reservoirs can deliver gas at commercial rates. Daydream-2 will now undergo an extensive testing program over the next 2-3 months, with the well perforated and stimulated across 6 discrete reservoir zones before being flow tested.

This will include tests of the permeable sands, tight sands, and coals to see what rates can be achieved. While operational constraints mean not every zone can be tested, the program should provide the first indications of potential commercial flow rates from the well.

Importantly, gas samples recovered from Daydream-2 show very low CO₂ content of just 1%. This is encouraging from a development perspective, as high CO₂ levels (like the 30% seen in parts of the Cooper Basin) can significantly add to processing costs and complexity.

The main news flow from the testing program is expected in May-July, with operational updates likely in the interim as key equipment is mobilized to site.

"There'll be a press release when we start the program because our shareholders just want to know that everything's kicked off and we're relatively on schedule," said Channon.

Positive Read-Throughs for Other Bowen Players

Elixir's success at Daydream-2 also bodes well for the other companies actively exploring the Bowen Basin at present. With both majors and juniors now drilling wells across the basin fairway, the chances of further commercial discoveries appear to be rising.

The Bowen Basin is emerging as a frontier area for natural gas exploration and commercialization that is attracting significant investment from energy industry majors and emerging junior resource companies. The basin has favorable geology for large-scale natural gas resources but is relatively under-explored to date compared to Australia's prolific oil-producing provinces like the Cooper or Canning Basins.

The Industry Interest in Exploring the Bowen Basin

The Bowen Basin is now seeing an influx of exploration and investment activity. Major companies like Shell and Santos have acquired acreage positions adjacent to key player Elixir Energy and are now actively drilling exploratory wells. Other emerging juniors like Omega Energy are also moving into drilling operational mode in the Bowen this year.

This industry capital and interest in the Bowen is driven by several key factors:

1. The high prospectivity of the Bowen Basin geology. The Bowen contains all the key geologic elements seen in Australia's most productive onshore gas basins - thick organic-rich source rocks, high-quality sandstone and coal reservoirs, and large regional trapping mechanisms. The Bowen is simply a vast but lightly explored frontier that may have been overlooked in the past.
2. Proximity to infrastructure and markets. Unlike truly remote frontier areas, the Bowen Basin is located close to established infrastructure connects like pipelines to access the high-demand East Coast gas markets. This provides a potentially quicker and lower-cost pathway to monetization of gas discoveries relative to other frontier gas plays worldwide.
3. Australia's tightening gas supply-demand balance. The ramp-up of LNG exports from East Coast terminals has diverted gas volumes from the domestic market in Eastern Australia and led to projections of potential supply shortfalls and higher prices as soon as 2024-2025. Developing new sources of gas supply to meet this demand is becoming an increasing priority.
4. Potential for scale. As Elixir's Daydream-2 drilling results have highlighted, the Bowen Basin reservoirs appear to have the potential for significant gas resources hosted in continuous tight gas plays that could support larger-scale and longer-plateau developments. Most of Australia's existing conventional gas fields are now mature, so the potential for new low-cost supply at scale is a key prize.

The results from upcoming exploration programs will be closely watched by the industry to see if Bowen emerges as Australia's next major producing gas region to help meet demand. With an increasingly supportive macro backdrop and the key geologic ingredients for success, the odds appear to be improving, making the Bowen Basin a high-potential energy frontier for Australia.

"This is a really exciting region where there's a lot of activity going on and it's not only in the gas space. There's a lot of activity in this region which is quite unique for Queensland." - Greg Channon, Elixir Energy Chief Geoscientist

Elixir Energy's dominant acreage position in the Bowen Basin provides investors with attractive exposure to a potentially major new gas play opening up in Australia. Promising drilling results at the Daydream-2 well have confirmed the presence of multiple high-quality gas-bearing reservoirs, with an upcoming testing program set to provide the first indications of commercial flow potential over the next few months.

With a large contingent and prospective resource base, proximity to infrastructure and strong gas markets, and increasing industry activity nearby, Elixir appears well-placed to create significant shareholder value from its Bowen Basin assets. The next 2-3 months will be a critical period for the company, with the potential for a major re-rating on success. Investors should consider establishing or building positions ahead of the upcoming catalysts.

The Investment Thesis for Elixir Energy

• Elixir has a dominant 10,000 sq km acreage position in the core of the emerging Bowen Basin gas fairway
• Drilling at Daydream-2 confirms the presence of multiple high-quality gas-charged reservoir intervals, including permeable sands
• Well testing program over the next few months will provide key indications of commercial flow potential
• Large 400 Bcf 2C contingent and 3.6 Tcf prospective resource already independently verified, with potential for further upgrades
• Proximity to infrastructure and strong East Coast gas markets provides commercially attractive development option
• Elixir offers strong leverage to success in opening up a potential major new gas province in Australia
• Recommend accumulating shares ahead of upcoming major potential re-rating catalysts from well-test results

Macro Thematic Analysis

The resurgence of interest and investment in Australian natural gas exploration and production is being driven by an increasingly constructive macro backdrop. As concerns over energy security rise globally following the disruptions from the Russia-Ukraine conflict, major gas-importing nations are looking to lock in new long-term supplies from stable economic and political jurisdictions.

Australia, with its vast gas resource base and existing LNG export infrastructure, is well-placed to benefit from this trend and potentially expand its role as a strategic global energy supplier. Domestically, Australia is also facing a tightening gas market, with the ramp-up of LNG exports diverting volumes from the East Coast market and leading to projections of potential supply shortfalls and higher prices as soon as 2023-2024.

Developing new low-cost sources of gas supply is therefore becoming an increasing priority for both the export and domestic markets. While Australia's traditional gas provinces are mature, the Bowen Basin is now emerging as a potential major new source of supply. Relatively underexplored but geologically highly prospective, the Bowen offers the potential for significant new gas resources located close to existing infrastructure.

With an increasingly supportive gas price outlook, several companies are now prioritizing the Bowen in their exploration plans. The entry of major operators like Santos and Shell provides significant external validation and increases the chances of proving up the basin. If the current drilling programs are successful, the Bowen could quickly become a strategically important new gas development hub for Australia, with the scale to support major new investments in both the domestic and export markets.